MIER upgrades Malaysia's economic growth forecast

MIER upgrades Malaysia's economic growth forecast

M.Jegathesan, Agence France-Presse, Kuala Lumpur

Malaysia's economy is likely to grow at a better-than-expected 6.7 percent this year on the back of an improved global outlook, the Malaysian Institute of Economic Research (MIER) said on Tuesday.

"Malaysia's economic prospects are brightening. All engines are firing," MIER's executive director Mohamed Ariff said after presenting a report by the independent think-tank.

"Major sectors -- manufacturing, tourism, commodities and property are expanding favorable. We expect robust growth," he said.

In January, MIER said economic growth for 2004 would be 5.7 percent.

MIER said Malaysia's economy was clearly gaining momentum, in line with global trends led by growth in the U.S. economy.

"The faster economic growth will drive Malaysia's exports higher and hopefully this will also translate into higher FDI (foreign direct investment) inflows," it said.

Electronics and electrical goods are among the country's largest exports.

Malaysia is the world's largest exporter of palm oil, with China and India being key markets while prices are at record highs.

MIER said the private sector would be the growth engine for the domestic economy, with interest rates likely to remain generally low and stable.

Business confidence and consumer sentiment in the country are also getting more upbeat, it said.

The central bank last month raised its 2004 economic growth forecast for Malaysia to 6.0-6.5 percent, from a 5.56.0 percent projection made earlier in the year.

However, MIER said it cut its forecast for Malaysia's 2005 growth to 5.5 percent from 6.2 percent, mainly due to an expected slowdown in the U.S. economy, which would normally be weaker after an election year.

As for the peg of the ringgit currency at 3.8 to the dollar, MIER said the effect was a 6.7 percent depreciation as of February 2004 compared to the same month last year, and a six percent drop compared to September 1998, when it was first pegged.

"This suggests that the ringgit may not have undergone any serious misalignment," it said, adding that any attempt to end the peg would have to be done unexpectedly to avoid unhealthy speculation.

Prime Minister Abdullah Ahmad Badawi on Monday brushed aside speculation that Malaysia would review the peg.

"Who is speculating? They can go on speculating. We have no plans to review the ringgit peg," Abdullah, who is also the finance minister, told reporters.

The central bank has said that a weaker dollar has benefited exports and had only minimum impact on imported inflation since less than 10 percent of Malaysia's imports are denominated in currencies other than the dollar.