The economy could expand by 6.2 percent in 2005, breaching six percent for the first time in five years and up from the 5.7 percent projected this year, a private think-tank said today.

For the second time in six months, the Malaysian Institute of Economic Research (MIER) said it had revised upwards its gross domestic product growth forecast to 5.7 percent this year and 4.9 percent in 2003, from 5.4 and 4.3 percent respectively, due to improved economic conditions.

This compares to the government's target of 4.5 percent for 2003, and 5.5 to 6.0 percent for this year. GDP growth last surpassed six percent in 2000 when it hit 8.5 percent but then fell sharply in 2001 due to the global economic slowdown.

MIER said in a report that the economy grew at an average 4.7 percent in the first three quarters of 2003 and continued expansion in investment and loans disbursed suggested that growth was becoming more entrenched.

Its consumer sentiment index showed the "best reading in three years," rising in the December quarter by 2.7 points from the previous quarter, indicating that consumers were feeling better about the economy and their future, it said.

Trailing

Its surveys also showed that business conditions were holding up reasonably well.

General elections due this year will lead to more domestic spending, while stronger exports due to an upswing in the electronics sector, improved foreign investment and corporate profits, and a healthier stock market will fuel growth, it said.

MIER cautioned, however, that Malaysia needed to strengthen its exports because it was still trailing behind some of its neighbours.

"In 2004, GDP could increase by 5.7 percent on the assumption that private sector activity will increase and that the global economy perks up, while geo-political tensions are reduced," it said.

Barring major disruptions to the global and local economies, "Malaysia's GDP growth could gravitate closer towards its potential growth in 2005. We predict economic growth of 6.2 percent in 2005," it said.

This is in line with government projections of average annual growth of six percent for 2004-2005, which is a more realistic level from an earlier forecast of 7.5 percent, it said.

Manufacturing will remain the key growth driver, with the sector expected to expand 8.3 percent annually for the next two years from the 7.5 percent estimated for last year, it added.

MIER warned of external downside risks to growth, citing new flash points in the Middle East, a terrorist backlash, a stalled US economic recovery, a hard landing for the US dollar, weak growth in Japan and the European Union, and a repeat of the Sars outbreak. - AFP