Outlook for 2011-15

• Political stability in Malaysia will come under moderate threat during the next five years, not because of any major shift in the balance of power, but rather because of internal strife within the two main political alliances.
• The Economist Intelligence Unit expects the governing Barisan Nasional (BN) coalition to call an early election—most likely in 2012, a year before its current term ends.
• Fiscal policy will be tightened gradually during the forecast period as the government strives to balance its budget by 2020. Monetary policy will also become tighter as domestic demand strengthens.
• The economy is expected to resume a fairly stable growth path in 2011-15, following a mild domestic recession in 2009 and a strong rebound in 2010. Real GDP growth will average 5.3% a year in the forecast period.
• The rate of inflation will accelerate to 3.1% in 2011 and will then average 3.6% a year in 2012-15. The government plans to rationalise the country's extensive subsidy schemes, and this will push up consumer prices.
• Despite the relatively rapid pace of growth in merchandise imports compared with that in exports, Malaysia will continue to run substantial trade and current-account surpluses in the forecast period.

Monthly review

• The ruling coalition retained the parliamentary seat of Tenang at a by-election on January 30th. The BN candidate, Mohd Azahar Ibrahim, managed to secure 3,707 more votes than his opposition rival.
• Parti Keadilan Rakyat, one of the parties in the opposition Pakatan Rakyat alliance, suffered another defection in January, when N Gobalakrishnan, a member of parliament for Pedang Serai, decided to become an independent.
• Bank Negara Malaysia (the central bank) left the benchmark interest unchanged at 2.75% at its monetary policy meeting in January.
• The effectiveness of central bank and the Ministry of Finance's supervision of capital flows have been called into question following the publication of a report by a US-based financial watchdog, Global Financial Integrity.
• The economy grew by 4.8% year on year in the fourth quarter of 2010. Despite a slight loss of momentum in that quarter, the economy grew by 7.2% in the year as whole—its fastest annual pace of expansion since 2000.
• Business sentiment weakened in the fourth quarter of 2010. By contrast, consumer sentiment continued to strengthen.