Malaysian Economy

OUTLOOK AND POLICY IN 2012

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International Economic Outlook White Box: Impact of the European Sovereign Debt Crisis on Malaysia Malaysian Economy White Box: Potential Output of the Malaysian Economy White Box: Impact of the Ringgit Appreciation on Import Prices and Inflation

101 Monetary Policy 108 Fiscal Policy

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ANNUAL REPORT 2011

OUTLOOK AND POLICY IN 2012

OUTLOOK AND POLICY IN 2012

ANNUAL REPORT 2011

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OUTLOOK AND POLICY IN 2012

INTERNATIONAL ECONOMIC OUTLOOK

The global economic recovery, which began in the second half of 2009, is expected to slow in 2012 largely due to the ongoing sovereign debt issues in the advanced economies. Growth in these economies would be largely constrained by fiscal consolidation and private sector deleveraging following impairment of balance sheet of financial institutions. The extent of the moderation in global growth is largely contingent on how the debt crisis evolves and the nature and timeliness of the policy actions in restoring market confidence. In particular, given Europe’s integration with the rest of the world, the spillover from the sovereign debt crisis will affect growth in both the advanced and emerging economies to varying degrees, through both trade and financial channels. Reflecting the weaker growth outlook and sentiments, global trade activity is expected to moderate, with a larger impact on the more open economies. In addition, continued volatility in international financial markets will have implications for global credit conditions through cross-border exposures to European banks, particularly to the banks that have weak balance sheets. Following the large and unprecedented policy stimulus measures taken during the global financial crisis, fiscal and monetary authorities in the advanced economies now have less policy space to fully mitigate the impact of these adverse developments on growth, thus reinforcing the expectations of a slower growth this year.

Chart 4.1...