Malaysia has a proven track record over several decades in successfully dealing with difficult periods in our economic history. Each time, the flexibility of the economy, the agility of the private sector to adjust and reinforcement by the policy response, has allowed the economy to emerge stronger. This was demonstrated during the Asian crisis. Within a period of one year, our economy was able to resume growth, expanding by 6.1% in 1999 and by 8.9% in 2000. The current conditions are by no means of such threatening proportions. If managed well by all parts of the economy, the economy will in fact emerge more competitive and stronger. This will require concerted efforts by the private and public sectors to become more efficient and thus reduce costs. This will also require shifting resources to new areas of activities where Malaysia has the competitive advantage. With the aptitude for hard work and prudent  2  BIS Review 71/2008  practices, and the ability for reinvention, this can be realised. To a great extent this has been achieved in the financial sector which has now emerged as an economic sector that generates income and employment and accounts for 11% of the economy, from only 4.5% in 1990. The current increasing inflationary pressures is a global phenomenon, the result of rising international prices of energy and commodities prices. In Malaysia, domestic inflation has increased from less than 1% in April 2004 to 3% in April 2008, primarily reflecting higher food and energy prices.
The region however, still remains highly integrated to the global economy and international financial system and therefore will have to manage the risk of moderation in global growth in the event that a more pronounced slowdown occurs in the major developed economies. This risk is compounded by the high and rising energy and commodity prices, which are impacting inflation in most countries today. Stronger demand for grains, the diversion of land used for food crops to biofuel crops, the higher transportation costs and adverse weather conditions are some of the factors driving the rise in food prices. As a consequence, rising cost pressures on inflation in the global economy can be expected to persist. Should global growth however, continue to moderate in the second-half of 2008, this can be expected to slow the pace of increase in energy and food prices, which in turn, will moderate the inflationary pressures that are currently being felt. Several domestic factors have sustained the growth of the Malaysian economy indicating that external demand has thus far resulted in only a modest moderation in our overall growth as the underlying strength of the economy has been able to sustain the resilience of the growth process. This has been underpinned by the strong domestic demand which has become a key driver of growth. The strong growth that has been achieved so far is on account of the robust expansion in private consumption and investment expenditure.