The country's economy is poised for sharper growth after expanding 5.2 percent in 2003, beating the official 4.5 percent target thanks to an upturn in foreign investment and exports in the fourth quarter, the central bank said today.

Bank Negara Malaysia governor Zeti Akhtar Aziz said gross domestic product (GDP) growth strengthened to 6.4 percent in the fourth quarter, up from 5.2 percent in the previous three months and marking the highest quarterly growth since the fourth quarter of 2000.

This was fuelled by a strong pick-up in the manufacturing sector, which surged 12 percent in the final quarter to push growth for the whole year to 8.2 percent from only four percent in 2002, she said.

Growth in the agriculture sector jumped to 5.5 percent in 2003, up from three percent the previous year, mining expanded 4.8 percent from 3.7 previously, services remained steady at 4.1 percent but construction growth eased to 1.9 percent from 2.3.

Zeti said there has been an upturn in foreign capital inflow since September, with net foreign investment surging 64 percent year-on-year to RM2.3 billion in 2003 and net portfolio investment of RM9.5 billion, reversing a RM4.8 billion outflow in 2002.

Ringgit peg to stay for now

With a significant improvement in the global economic and financial outlook and backed by strong domestic growth, she said the economy was on track to achieve the official forecast of 5.5 to 6.0 percent growth this year.

"Growth in the external sector is gaining momentum, and combined with strong indicators of domestic demand, it provides a high degree of confidence and improved economic performance can be achieved this year," she told a news conference.

The Malaysian economy grew 4.1 percent in 2002.

Zeti said the bird flu outbreak in Asia was expected to have minimal impact on the economy as business travel was improving with tourist arrivals of more than a million each month and a recovery in the services sector.

Interest rates will be kept low to support private sector growth, she said.

Despite pressure on China to devalue its yuan, Zeti said the government would maintain the six-year-old ringgit peg of 3.80 to the dollar, fixed since 1998, because it had boosted exports to Southeast Asia and was a key element to promote regional integration.

"It is important for us to have stability against our major trading partners. Trade with this region has increased significantly... we now have greater regional integration and it is important to ensure currency stability in this region."

Some analysts said it was time to remove the peg given the weakening dollar. The government says it has no plans to change the value for now but promised a review if the situation merits it.

Strong global demand for exports

The improved economic data coincided with a move by global investment house Morgan Stanley to upgrade its forecast for Malaysia's GDP growth this year to 5.7 percent, from five percent previously.

The economy "has performed better than our original estimates," with merchanidise exports expanding eight percent last year from five percent in 2002 and expected to register double-digit growth in 2004, said regional economist Daniel Lian.

He also cited strong global demand for Malaysia's exports, a recovery in capital expenditure and significant changes brought about by new Prime Minister Abdullah Ahmad Badawi in the past four months.

"This includes... unwinding fiscal and government investment excesses, leaning towards a more balanced economic development path, establishing a workable coalition within the cabinet and leveraging professional bureaucrats at the expense of corporate insiders," he added.

Malaysia's international reserves had risen to RM48.4 billion as at Feb 14, adequate to finance 7.6 months of retained imports and 5.4 times the short-term external debt, Bank Negara said. - AFP