The year 2006 will witness the release of two important policy documents: the Ninth Malaysia Plan and the Third Industrial Masterplan. The Plans will outline the key policy directions over the next several years to enhance Malaysia's long-term growth prospects, including: (i) the role of agriculture and the nascent biotechnology industry; (ii) moving up the value chain in the manufacturing sector; (iii) the increasing importance of services, especially business and shared services, including outsourcing; and (iv) the importance of education in developing the human resources needed to achieve the development objectives. An important strength of our economy for several decades now, is its flexibility, that is the ability for resources to shift to new areas of comparative advantage in response to changing conditions and new opportunities in the global economy. In particular, there is a high degree of labour and capital mobility. Significant investments in training and education have allowed labour to adjust and become more mobile. This has played a large part in enabling rapid industrialisation and in shifting to higher value added activities. Capital has also shown greater mobility, expanding the potential for the economy to adjust. Malaysia has also actively identified and develop new sources of growth, leveraging on its resource advantages and new technologies to move up the value chain. There have also been greater moves toward removing rigidities and transitioning toward greater market orientation and competition. Turning now to monetary policy, Bank Negara Malaysia's determination of interest rate policy is based on the requirements of the domestic economy.
The outturn for the year as a whole is now expected to be in the range of 5 - 6%. There is also greater optimism now that the prospects for this growth momentum will be sustained in 2006. Of significance is the continued strength of private sector activity. Household consumption increased by 10.4%, while real gross fixed capital formation increased by 9.6% in the third quarter. Reflecting Malaysia's structural transformation toward a skilled- and knowledge-based economy, the services sector has become increasingly important, now accounting for 58% of GDP, compared to only 47% in 1990. Indeed, more than 50% of the growth in the third quarter emanated from the services sector. Growth has remained strong in both the traditional services sub-sectors as well as in new growth areas such as shared services and the information and communication technology industry. This structural transformation of the economy has also been reflected in the pattern and the quality of foreign direct investment, with a shift away from capital- and labour-intensive projects towards the higher value added, skills and knowledge-intensive services industries. In the manufacturing sector, the electronics industry is expected to benefit from the uptrend in the global electronics cycle, while commodity prices are forecast to remain high, supporting export growth as well as private consumption. Sustained demand for new uses for palm oil, in particular for bio-diesel production is a positive development. Private investment is expected to also increase substantially in 2006, driven by high levels of capacity utilization and strong revenue and earnings growth.