Malaysian GDP growth may slow to 5.7%, MIER says

Malaysian GDP growth may slow to 5.7%, MIER says

Bloomberg
Jakarta

Malaysia's economic growth may slow to 5.7 percent this year from
an estimated 7.2 percent in 2004, the Malaysian Institute of
Economic Research said, as overseas demand for the nation's
electronics falters.

The economic think-tank, whose forecasts are closely followed
by industry, expects Malaysia's U$115 billion economy to expand
5.3 percent in 2006.

Southeast Asia's third-largest economy probably grew 7 percent
last year, the fastest in four years, according to government
forecasts. The institute's estimates, announced today in Kuala
Lumpur, were unchanged from forecasts made in December.

Slowing economic growth in the U.S. and China may reduce
demand for semiconductors, hard-disk drives and other electrical
and electronics products, which accounted for almost half of
Malaysia's exports in November.

"As the pace of expansion in industrial countries moderates,
Malaysia's export performance may cool down, while FDI inflows
may be affected," the institute said.

The think-tank said the U.S. will probably raise interest
rates this year, and China's economic growth will slow.

China's economic growth will probably ease to 8 percent this
year from an estimated 9.3 percent in 2004, according to the
median estimate of 10 economists surveyed by Bloomberg last week.
That would be the slowest pace of expansion since 2001.

Malaysia's fourth-quarter economic growth probably slowed to 6
percent from a year earlier, the institute said. The effect of
the Dec. 26 tsunami on the economy will be "no more than
marginal," it said.

The tsunami killed 69 people in Malaysia after slamming into
northern states including Penang and Kedah.

Economic growth slowed to 6.8 percent in the third quarter
after expanding a revised 8.2 percent in the previous three
months, the central bank said in November.

Malaysia probably won't change the ringgit's peg to the U.S.
dollar this year because China isn't likely to scrap its own
fixed currency anytime soon, the institute's Executive Director
Mohamed Ariff Kareem told reporters in Kuala Lumpur.

He said maintaining the six-year-old peg is a "political
decision."

In its report, the institute said Malaysia's government should
review the currency peg now rather than later because of the
slowdown in global economic growth.

"With the global economic prospects getting less encouraging
in the next two years, and the expectations that the dollar slide
will go on further, it appears that right about now it's as good
a time for the monetary authorities to consider the dismantling
of the peg," the think-tank said in the report.

Malaysia's ringgit was pegged to stem capital flight during
the Asian financial crisis.

The decision gave the central bank room to cut interest rates,
helping the economy recover from its worst recession in 41 years.
China's currency, the yuan, was fixed at about 8.3 to the dollar
in 1995.

The institute's consumer sentiment index fell 4.6 points, to
109.3 in the fourth quarter from 113.9 in the third quarter.

Its business confidence index fell 12.9 points to 97.3 in the
fourth quarter from 110.2 in the third quarter, affected by
factors such as an expected slowdown in the global and domestic
economy, and higher energy costs and toll rates, it said.