“While there are indications of more sustained growth in the major economies in 2017, downside risks to global growth continue to prevail, arising from the volatility in commodity prices, policy uncertainties and growth prospects of the major developed economies, heightened risk aversions in the global financial markets as well as geopolitical developments,” it said.
BNM said while the external environment might continue to remain challenging, the Malaysian economy will experience sustained growth with the primary driver being domestic demand.
“Private consumption is anticipated to remain supported by wage and employment growth, with additional impetus coming from announced government measures to support disposable income of households.
“Investment activity will continue to be anchored by the on-going implementation of infrastructure projects and capital spending in the manufacturing and services sectors,” it said.
Commenting on BNM said the Q4 2016 growth was supported by the continued expansion in private sector expenditure.
On the supply side, growth continued to be driven by the manufacturing and services sectors.
“Overall, domestic demand expanded at a more moderate pace, as the improvement in private consumption and investment activity was more than offset by the decline in public expenditure.
In the fourth quarter, private consumption grew by 6.2% (3Q 2016: 6.4%), supported by continued wage and employment growth.
“Private investment registered a growth of 4.9% (3Q 2016: 4.7%), following continued capital spending in the services and manufacturing sectors. Growth of public investment improved mainly on account of higher spending on fixed assets by public corporation, but nevertheless, remained in contraction during the quarter.
“Public consumption also declined by 4.2% (3Q 2016: +2.2%) arising from the rationalisation of spending on supplies and services and a moderation in the growth of spending on emoluments.
“On the external front, net exports contributed positively to growth as real exports expanded at a faster rate than real imports.
“On the supply side, growth in the manufacturing, mining and agriculture sectors improved,” BNM said.
In the Q4 2016, the manufacturing sector expanded at a faster pace at 4.8% owing to higher growth in both domestic and export-oriented industries.
The mining sector recorded an improvement of 4.9% due to the increase of natural gas production during the quarter.
In the agriculture sector, economic activity contracted at a slower pace at -2.4%, reflecting the diminishing impact of El Niño on crude palm oil yields.
Growth in the services sector continued to expand at 5.5%, albeit at a more moderate pace, supported mainly by consumption-related services.
In the construction sector, growth remained driven by the civil engineering sub-sector, recording a growth of 5.1%.
BNM said that in Q4, 2016, the current account surplus widened, due mainly to a higher trade surplus and narrower deficits in the income accounts.
The central bank said as at Jan 31, 2017, the reserves position totalled US$95bil (RM426bil). The international reserves remain ample to facilitate international transactions. They are sufficient to finance 8.6 months of retained imports, significantly higher than the 3-month international threshold.
Total gross financing raised by the private sector through the banking system, development financial institutions (DFIs), and the capital market amounted to RM316.2bil (3Q 2016: RM293.8bil).
On the ringgit, BNM said it depreciated by 7.6% against the US dollar during the quarter.
The ringgit also depreciated against the euro (-1.6%), the pound sterling (-2.4%) and the Australian dollar (-2.5%), but appreciated against the Japanese yen (6.3%).
The ringgit also depreciated against all regional currencies, with the exception of the Korean won, by between 2.1% and 5.6%.
BNM said the Malaysian financial system remains resilient despite global uncertainties over policy adjustments in the major economies.
The domestic banking system remains well-capitalised, with ample liquidity to support the financing needs of businesses and households.
As businesses and households continue to adjust to the challenging economic outlook and higher cost of living, these financial buffers will support the resilience of the financial institutions.
It cautioned that going forward, external events will continue to weigh heavily on the volatility of the domestic financial markets.
BNM said these include increased uncertainty over political developments and growth in the major economies as well as volatile commodity prices.
“Domestic financial system stability is nonetheless expected to be preserved given the loss absorption capacity of financial institutions supported by strong capital and liquidity buffers”, it added.