Growth of the domestic economy is expected to moderate to 5-2 per cent this year, the Malaysian Institute of Economic Research (MIER) says-Structural impediments in net exports will drag down overall gross domestic product (GDP) growth in 2011, MIER executive director Dr Zakariah Abdul Rashid said- Zakariah, however, said domestic demand will likely be strong due to government policy measures- The resilience in the demand was already reflected in the growth of domestic-oriented manufacturing industries, he said at a media briefing in Kuala Lumpur yesterday- Zakariah said downside risks such as the ongoing external headwinds from the eurozone, the US and regional economies that were still prevalent might affect the road to recovery- Another concern is the level of household debt- One of the main challenges for Malaysia, he added, is the full implementation of the Economic Transformation Programme- The economic recovery, which started in mid-2009, will continue into 2011- For 2010, the think tank expects Malaysia to chalk 6-8 per cent growth, with growth estimated slowing to 2-9 per cent year-on-year, due to a weaker global environment and disappearing low- base effects- The GDP eased to 5-3 per cent in the third quarter, from 8-9 per cent in the second quarter and 10-1 per cent in the first quarter- On inflation risks, Zakariah said higher food prices would be the main contributor but the Consumer Price Index (CPI) would reach a manageable 2-8 per cent year-on-year in 2011, from 1-7 per cent in 2010- Interest rates are expected to remain stable this year with the Overnight Policy Rate likely to be higher by 25 basis points from the current level of 2-75 per cent to 3-0 per cent by the end of 2011- MIER senior research fellow Dr Foong Kee Kuan said a "severe interest rate" is not likely, especially with 2011 expected to be an election year- "As the economy gathers momentum in 2012, the CPI may breach Bank Negara's implicit target of 3 per cent and it may hike rates to 3-25 per cent," he said- MIER also expects the ringgit to trade at RM3-05 to the US dollar in 2011- Foong, however, expects the central bank to intervene when the ringgit level breaches RM3-10, a move to ensure that exports do not trip from a stronger currency- Meanwhile, MIER's survey results showed that consumer sentiments during the fourth quarter remained high (117-2 points), along with residential property index which surged to 125-1 points- The tourism market index also strengthened to 124-6 although the retail sector took a breather, shedding eight points to settle at 132-0 points- ...

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