Amid sluggish industrial production growth, it was hardly surprising that there was a fall in the business conditions index, published by the Malaysian Institute of Economic Research (MIER). The index slipped from 104.9 in the third quarter to 99.5 in the fourth quarter, just below the "boom or bust" dividing line of 100. Businesses complained that sales had fallen significantly and forecast that export sales would be lower, but nonetheless expected production to be marginally higher-continued stagnation, in other words. None of these fears were apparent in the MIER's consumer sentiment index (CSI). The CSI remained at a high level in the fourth quarter, edging up slightly, to 117.2, from 115.8 in the third quarter. The improvement in the index reflected household optimism and firm demand based on rising incomes, an improving employment outlook and confidence about financial prospects. However, consumers were increasingly concerned about inflation. The strength of consumer confidence was underscored by the release of passenger-car sales data for 2010, which showed a 12.7% jump to a record 543,594 units.

The pessimism of the business community is based on the outlook for exports, which are expected to growth at a slower pace this year than in 2010. Merchandise exports have not yet recovered to their pre-global recession 2008 levels. Export growth weakened steadily during 2010, although, owing to rising global commodity prices relative to 2009, the value of merchandise exports actually grew by 4.6% in December. Weak demand from developed economies has been blamed for the slowdown in export growth. But Malaysia also has a problem with its export structure and competitiveness: its largest export category, the electrical and electronic goods sector continues to lose ground, with electrical products performing particularly weakly. Shipments of electrical and electronic goods fell by 6.8% year on year in December, following growth of 4.3% in November. The second-largest export category in December, accounting for 11.3% of total exports in value terms, was palm oil and palm oil-based products. The value of palm oil exports jumped by 40.3% year on year in December, notwithstanding volume drop of 5.8%.