The country's economic growth is expected to rise to 5.7 percent next year, led by a rebound in exports, a stronger private sector and favourable government policies, a think-tank said today.

The government is expecting growth of between four to five percent this year.

"If global economic and geopolitical conditions improve in 2003, we could possibly expect a better outcome in 2004," Malaysian Institute of Economic Research (MIER) executive director Mohamed Ariff said at an economic outlook seminar.

Ariff said MIER was forecasting 6.3 percent growth for 2004 as a result of a steady rise in global and domestic demand.

External demand is projected to pick up next year in line with the International Monetary Fund's global growth forecast of 3.7 percent but risks included a war in Iraq or any further devastating terrorist attacks, he said.

Ariff said foreign direct investment in Malaysia would regain momentum with the expected global economic recovery.

Reviewing the peg

Exports are forecast to grow by 8.4 percent, while imports are seen rising by 9.5 percent next year.

Ariff said Malaysia could consider reviewing the ringgit peg in the middle of next year.

"I think we need to have an exchange regime that's flexible enough to absorb external shocks. So I think we need to take another look at this. Maybe mid-2003 may give us an opportunity to review the peg issue."

Luis M Valdivieso, International Monetary Fund's division chief for the Asia Pacific, told reporters at the sidelines of the seminar: "There is no immediate threat to the peg... we do not believe the ringgit is misaligned."

The central bank recently said the ringgit peg of 3.80 to the dollar, fixed since September 1998, remained consistent with economic fundamentals despite weakening against major currencies in the January-October period.

Ariff said corporate restructuring and banking consolidation have helped the private sector regain strength, Ariff said, adding that this should lead to a recovery in private investment in 2003.

The domestic recovery is likely to gather momentum in the second quarter of next year as the government's economic stimulus measures begin to yield results.

Domestic-oriented sectors would benefit from the fiscal stimulus and the low interest rate regime, he said.

Continuing public spending

The government's projected 2003 budget deficit would ensure public spending continues to make a sizeable contribution to the economy.

"The stimulus packages are still needed because we do see a lot of uncertainties in the international arena. The US economy is still weak... (and) there are some problems in Japan and even in Europe, it is somewhat sluggish," he said.

Ariff said the manufacturing sector would be the key growth driver over the next two years.

Malaysian manufacturing sales rose five percent in October from a year earlier to RM27.2 billion but dropped 1.1 percent from the previous month, official data showed Tuesday.

Last month, the central bank said the country's economy expanded 5.6 percent in the third quarter to September from a year earlier. AFP