The Malaysian economy is projected to grow by 5.2 percent this year amid fresh challenges driven by rising inflationary pressures, says the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP).

“The implementation of structural reforms, as envisioned in the government’s New Economic Model, will be vital for boosting competitiveness and sustaining growth in the future,” said United Nations resident coordinator to Malaysia, Kamal Malhotra.

azlan He said Asia-Pacific economies faced fresh challenges like higher food and fuel prices, capital market volatility caused by increasing short-term capital flows coupled with sluggish recovery in developed economies.

“The key immediate challenge is to address rising food prices that are threatening to undermine seriously the gains from poverty reduction,” he said at the launch of the UNESCAP’s Annual Economic and Social Survey of Asia Pacific in Kuala Lumpur today.

Malhotra said Malaysia’s inflation may also accelerate to three percent this year with the phasing out of price controls and subsidies, putting upward pressure on prices of goods and services.

Currently, Malaysia’s inflation stood at 1.7 percent and was among the lowest in South-East Asia.

“However, the real inflation may be higher than what is reflected in the Consumer Price Index (CPI), as figures might be affected as Malaysia practices a subsidy regime,” he said.

On a broader note, Malhotra said the Asia-Pacific region was expected to grow modestly by 7.3 percent, against 8.8 percent growth achieved in 2010, after rebounding from the 2008/2009 sub-prime led financial crisis.

Meanwhile, in presenting the key findings of the survey, UNESCAP macroeconomic policy and development division economic affairs officer Shahid Ahmed said in the medium-term, governments need to consider ways to boost domestic demand and intensify regional integration.

“Asia-Pacific exporting economies will need to generate more aggregate demand in the region to sustain their dynamism, in order to mitigate loss of demand from developed economies restrained from more debt-fuelled consumption.

“Moreover, there is also the risk of economies destabilising in Asia-Pacific caused by volatile flows of speculative capital,” he said.

Intra-regional trade not fully exploited

He also said the potential of intra-regional trade has not been fully exploited due to high trade costs and other barriers, although Asia-Pacific countries have been very active in pursuing preferential trading agreements.

“These agreements tend to be bilateral or subregional in nature and consequently, do not create a seamless, broader and unified Asia-Pacific market,” he said.

- Bernama