The Malaysian economy grew by about 5 per cent in 2011, which is less than the growth rate of 7.2 per cent registered in 2010, when the Malaysian economy rebounded from the adverse effects of the 2008 global financial crisis as a result of which the economy had contracted by 1.7 per cent in 2009. The recovery and sustained growth in 2010 and 2011 were driven largely by domestic demand and rising commodity prices as external demand for Malaysia's manufactured goods weakened.

The liberalized services sector, the manufacturing sector, the agricultural sector, and the construction sector made positive contributions to GDP growth in 2010 and 2011. However, the mining sector's contribution was negative in 2010 and close to negligible in 2011.

Although economic growth moderated in 2011, inflationary pressures built up because of supply shortages, rising incomes, and subsidy cuts for essential food items and fuel. The government tried to contain inflation by raising the interest rate and the statutory reserve requirements of banks, reinstating some of the subsidies for essential food items; and providing cash handouts in its Annual Budget for 2012. The government also attempted to stabilize housing prices by introducing cooling measures.

The trade balance was positive in 2010 and 2011 and this generated a positive current account balance. The inflows of capital also helped to generate an overall surplus in the balance of payments, which was reflected in the increased international reserves held by the Central Bank of Malaysia in 2011.

The banking system was sound with steady loan growth and a relatively high risk weighted capital ratio (RWCR) and core capital ratio. The bond market was active with Malaysia becoming the largest issuer of Islamic bonds. The stock market was vibrant but volatile because of the sudden inflow and outflow of foreign portfolio investments.

The government's fiscal deficit increased from 5 per cent to 6 per cent of GDP and the public debt as a percentage of GDP was 56 per cent in 2011.