The Malaysian economy expanded 5.6 percent in the December quarter, taking 2004 growth to 7.1 percent, its fastest pace in four years, the central bank said today.

The 2004 gross domestic product growth beat the official target of 7.0 percent, driven by robust domestic demand while government's consolidated its fiscal position, Bank Negara Malaysia said in a statement.

It said growth prospects remain "favourable" this year as the global economic expansion was expected to be sustained at a steady pace.

Although the global electronics industry is consolidating since reaching a peak in mid-2004, the downcycle was likely to be modest in view of continued demand, more rapid inventory adjustments and relatively low stock levels.

The impact of the Dec 26 tsunamis, which killed more than 290,000 people in nations around the Indian Ocean, is likely to be "minimal and short-term," confined largely to the tourism and fishery industries in selected areas in the affected countries, it said.

"Economic growth momentum will be maintained into 2005. Growth would be driven by the private sector as the public sector consolidates its fiscal position," Bank Negara said.

"Growth in the Malaysian economy would continue to be achieved amid low inflation. The upside risks to inflation are limited by capacity expansion and continued productivity growth," it said, adding that interest rates would remain supportive of growth.

Song Seng Wun, regional economist with Singapore-based GK Goh, said the numbers were within expectations and he kept his 5.7 percent growth forecast for 2005 on sustained growth in mining and agriculture.

"2005 growth will have more or less the same profile as 2004 but it will not be as high," he said, with demand to be domestically driven and boosted by exports.

CIMB Securities chief economist Lee Heng Guie projected 2005 growth at 5.0 percent given the weakening global economy and moderation in exports growth.

"The first half of 2005 is likely to grow at around 4.0 to 5.0 percent because of weakening global environment but should pick up in the second half with growth of 5.0 to 6.0 percent," he said.

Construction sector weak

In the December quarter, it said growth in the manufacturing sector dropped to 5.4 percent from 9.9 percent in the three months to September following a sharp slowdown in electronics and electrical output.

This also pushed the country's exports growth down to 16.1 percent, while imports increased by 18.6 percent.

The construction sector also remained weak, contracting 3.3 percent after a fall of 3.0 percent in the preceding quarter due mainly to lower civil engineering activity.

However, the services sector improved to 6.3 percent from 6.1 percent in the third quarter, thanks to a significant expansion in the transport, storage and communication sub-sector.

Agriculture grew 7.7 percent after 5.3 percent previously, underpinned by a strong performance in the palm oil sector while mining remained steady at 4.7 percent driven by higher production of natural gas and crude oil.

The private sector led the expansion in domestic demand in the fourth quarter, rising 9.7 percent but public consumption growth eased to 3.7 percent.

Inflation edged up slightly to 2.1 percent due to higher cost of food, transportation, cigarettes and tobacco.