TITLE : ECONOMIC REPORT 2000/2001.

Malaysia's `V-shaped' recovery marked the end of recession and the return to the path of sustained growth. The economy has not only rebounded but continues to perform beyond expectations, with real Gross Domestic Product (GDP) registering an annual growth of 10.3% in the first half of 2000 based on 11.9% growth in the first quarter and 8.8% in the second quarter. For the year 2000 as a whole, the economy is poised to register growth of 7.5%. The turnaround and expansion in real GDP has been significant in that, while it was initially external sector led, it has since become broad-based, driven by increase in private sector demand following the impact of expansionary fiscal and monetary policies. The pick-up in domestic demand will undoubtedly contribute to futher strenthening macroeconomic fundamentals, thereby, reducing the nation's vulnerability to the vagaries of external demand.

Sound macroeconomic fundamentals continue to prevail. The balance of payments situation continues to record surpluses despite some narrowing of the current account surplus given the impact of a higher momentum of economic activities on import growth. The nation's external reserves, however, remain strong. In addition, the robust expansion in economic activities was achieved in an environment of subdued inflation of below 3% with the economy at full employment. Gross National Product per capita is expected to increase to levels above the pre-crisis period to RM12,883 in 2000 while per capita in purchasing power parity terms is set to expanad at an even higher pace to register US$7,716 for the year, indicating the improving levels of living among the rakyat.

As the Malaysian economy mover beyond crisis to consolidate and resume the path of more sustainable growth, the government is now more focused on strengthening the foundations of growth to meet the challenges of globalisation and liberalisation. This is important given that our ability to cope with the last crisis rested in no small measure on our fundamental macroeconomic strength on the onset and during the crisis. As private investment and consumption continue th strengthen, the private sector will resume its role as the engine of growwth, thereby, ensuring sustainability of economic expansion in the longer term. Likewise, efforts aimed at strengthening the foundations and sources of growth will be further enhanced. In this regard, on-going measures to strengthen the financial and corporate sectors will continue to be concientiously pursued while efforts aimed at broadening and deepening the capital market, in particular the bond market and venture capital, will be intensified. This is to enhance the ability of the financial system to be more dynamic, innovative and capable of supporting growth, particularly in new economics activities.

Amidst the rapid transformation taking place in the global economy, Malaysia has also pursued the steps neccessary to facilate the transition from a production-based economy to an economy based on technology and knowledge to ensure that we continue to be competitive in the new global environment. In this regard, I cannot but stress how crucial it is for all sectors of the economy and segments of society to increase their application of technology and knowledge in all activities. Attention will continue to be focused on identifying new and expanded sources of growth in the traditional sectors of the economy. Steps will also continue to be undertaken to upgrade skills, productivity, efficiency and research and development in new products and services in order to enhance the nation's resilience and competitiveness.

The outlook for sustained strong growth in the future is promising and we are all poised to seized the opprotunities that are emerging, we need to remain focused on the task and be wholly resolve to moving the economy forward, in a timely manner, as there is no room for complacency. The rakyat needs to be one with the Government in undertaking this major task and respond to the policy initiatives in place to propel the economy forward. Lack of urgency, deciveness or determination in responding to the new challenges may undermine the gains we have so painstakingly made in the past.

This economic report is the 29th volume published by the Ministry of Finance in conjunction with the presentation of the 2001 Budget. It is my belief that the Economic Reprot provides a comprehensive discussion on alll developments taking place in the Malaysian Economy in 2000 and prospects for the year 2001, as well as outlines the issues, challenges and risks facin the nation in sustaining strong growth in the immediate and longer term. In this regard, I would like to reiterate the need for a 'new Malaysia' whtere all segments of society remain commited and resolute in working together to empower the nation to move `From Strategic Vision to Strategic Implementation'.

KUALA LUMPUR DAIM ZAINUDDIN 27 oCTOBER 2000