Malaysia today slightly lowered its economic growth forecast this year to 3.5 percent but predicted an "upward" bias if the US economic recovery was sustained.

The government had earlier predicted 2002 gross domestic product (GDP) to grow between four and five percent, although Prime Minister Dr Mahathir Mohamad said in January that GDP would grow by only three percent.

Central bank, Bank Negara, in its 2001 annual report, noted the current economic upturn was taking place amid global excess capacity, particularly in the technology sector.

"External demand is, therefore, expected to strengthen gradually. Against this background, the recovery in the Malaysian economy would be modest, with real GDP expanding by 3.5 percent in 2002," it said.

"If the positive trend in the latest indicators for the US economy is sustained, the bias to the growth projection would be on the upside."

After avoiding a recession last year with a 0.4 percent growth, Bank Negara governor Zeti Akhtar Aziz said the economy was now in the early stages of a recovery, with six consecutive months of positive growth since July.

She said growth in the first quarter this year was likely to be flat to one percent but would strengthen further in the second half of the year.

"We expect the recovery to strengthen as the excess capacity diminishes and investment picks up in the second half of the year," she told a news conference.

Market consensus

Economists said the revised GDP growth was in line with market consensus.

"It is a downward revision but it is definitely a more reasonable and meaningful estimate," said Nizam Idris, regional economist with Singapore-based IDEAglobal.

The report said manufacturing was expected to turn around to grow 4.2 percent after contracting 5.1 percent in 2001 amid an anticipated upturn in the US economy and electronics demand.

Output of export-oriented industries is seen growing 4.9 percent after falling 10.2 percent in 2001.

Similary, exports are projected to grow 4.4 percent to reverse a 10.4 percent slump last year, with electronics exports alone to grow 9.5 percent after tumbling 16.3 percent in 2001.

Imports are expected to grow faster at 4.8 percent after declining 9.9 percent last year.

Bank Negara said growth in the electronics industry was underpinned by an improvement in the personal computer market as computers and peripherals accounted for about 40 percent of total electronics export.

Malaysia would also benefit from an increasing trend to outsource activities, with some large manufacturers in the region expected to transfer some operations to Malaysia amid a consolidation of plants.

Construction growth is expected to sustain at 2.4 percent. Agriculture growth is seen easing to 1.0 percent, down from 2.5 percent last year due to lower output of crude palm oil, rubber and saw logs.

Crude oil demand

Growth in services sector is forecast to moderate to 3.8 percent, down from 4.9 percent in 2001, but mining is expected to pick-up to 3.0 percent from 0.2 percent due to higher demand for crude oil and natural gas.

Private consumption is expected to pick up to five percent from 2.8 last year while private investment is seen growing 1.2 percent to reverse a sharp 19.7 percent contraction.

Bank Negara said Malaysia's current account surplus was expected to remain large at 7.9 percent of gross national product (GNP) but this was lower than 8.9 percent last year.

It said inflation would edge upwards to 1.8 percent from 1.4 percent last year, with unemployment easing to 3.6 percent from 3.7 previously.