While we continue to believe that the growth in the advanced economies will remain low relative to historical levels, and there are a number of reasons for that, the signs are that these economies are finally able to achieve steady growth. And that is obviously good for the global economy. As for the emerging market economies (EMEs), they have done relatively well in the years since the crisis. Domestic demand had been supported by high commodity prices as well as expansionary fiscal and monetary policies. However, growth in the EMEs now seems to have hit a bump in the road. The commodities boom has tapered off and this has impacted incomes. The fiscal stimulus has increased government debt making further fiscal expansion less sustainable. On top of that, the low interest rate environment has led to an increase in household debt. These developments are now beginning to act as a brake on economic growth. This experience highlights the risks and limits of domestic demand driven by easy monetary policy, cheap credit and fiscal stimulus. Therefore, domestic demand in EMEs will grow at a slower pace. Nevertheless, EMEs will still be contributing a bigger share to global growth than the AEs. The re-emergence of growth in the crisis-affected AEs could be expected to strengthen external demand for the exports of EMEs, thereby mitigating the effect of slower domestic demand. Among the Asian economies, we do expect to see similar trends. Again, sustained domestic demand, while lower than in the past, will continue to support growth.
After the crisis, there was some excitement about domestic demand being the driver of growth, and there was some justification for such enthusiasm. There was certainly a component related to the growth in incomes and private demand. But there was also a significant component related to public spending and the rapid growth of domestic credit. The outcome is higher debt levels for both households and the Government. This is clearly not a sustainable strategy for growth. Indeed, the experience has shown that there are limits to how fast and how sustainably we can grow by relying on domestic demand alone. Therefore, going forward, while domestic demand will continue to support growth, we really need to strengthen our integration with both the regional and global economy, and by implication, strengthen our overall level of economic competitiveness, if we are to achieve sustainable growth over the long term. Returning to the economic outlook, the good news is that we are seeing more sustained growth around the world and that is already beginning to benefit Malaysia and creating more balanced growth of the Malaysian economy. Now what are the potential clouds over this rather sunny outlook? There are several, but in the interest of time, I will just mention five. The first of this is the slow recovery of investment in the AEs after the crisis. It has been noted that this recovery, unlike recoveries from past recessions, has been accompanied by rather lackluster investment. This is despite the fact that companies are sitting on large piles of cash.