KUALA LUMPUR: Bank Negara Malaysia has raised its forecast for Malaysia's economic growth this year to 5.5-6.0 per cent from 5.0-5.5 per cent previously.
In its 2017 Annual Report, the central bank said the optimistic outlook was due to continued expansion in domestic demand and key economic sectors as well as strengthening exports that pushed the current account surplus is sustained.
In addition, the overall inflation rate is expected to moderate this year.
Last year, the country's economy recorded gross domestic product (GDP) of 5.9 per cent.
The central bank said domestic demand will continue to drive growth, supported by favourable earnings and employment conditions, as well as new and ongoing infrastructure projects and capital expenditure.
The strong growth momentum, BNM said, will also be supported by a steady positive spillover from the external sector to domestic economic activity.
Malaysia's trade performance will benefit from encouraging global demand, exposure to global technology cycles, and new export production capacity.
On the home front, continuous income and employment growth will sustain sustainable household spending, supported by continued government measures and improved consumer sentiments.
Private investment activity is also expected to be sustained through capital expenditure for ongoing projects and new projects, in the wake of rising business sentiments.
On the other hand, public sector spending is expected to moderate as a result of continued fiscal consolidation efforts and some major projects by publicly-ready companies.
The economic outlook is also affected by some of the risks posed by positive aspects arising from external and domestic factors.
A stronger global demand than expected will brighten the prospects for export-oriented industries. This could increase revenue and business profits and household income, which further reinforces business and consumer sentiments.
Potential increase in minimum wages and the implementation of existing and new production facilities, which are faster than expected in various industries, including oil and gas, resource-based and electrical and electronic (E & E) manufacturing, will also support better growth prospects.
However, the risk of slow growth still exists. Discretionary monetary and regulatory improvements in the advanced economies, increased trade protection by key trading partners as well as moderate growth from expectations in China, may affect Malaysia's export strength to key trading partners.
On inflation, the central bank forecasts overall inflation is expected to average between 2.0-3.0 per cent this year compared to 3.7 per cent last year, which is projected to be lower than the previous forecast of 3.0 per cent and 3.5 per cent.
It said although higher global oil prices would cause domestic fuel prices to increase by 2018, the higher base for domestic fuel prices in 2017 and the strengthening of the ringgit exchange rate in 2018 may have contributed to the domestic fuel price contribution to overall domestic inflation to be small.