Bank Negara Malaysia yesterday said a prolonged downturn in the global semiconductor industry, high oil prices and rising interest rates could push economic growth to as low as five percent this year.

The central bank said gross domestic product (GDP) growth was expected to slow to 5-6 percent in 2005, after surging 7.1 percent in 2004, its fastest pace in four years, and from an earlier 2005 forecast of six percent.

Growth in manufacturing, which contributes a third of the economy, could slow to 4.5 percent in 2005, less than half of the 9.8 percent in 2004, with electronics exports growth falling to 4.5 percent from 12.7 percent, it said.

"There are uncertainties in the external environment and these uncertainties put our growth in a range (of five and six percent)," central bank governor Zeti Akhtar Aziz said on the release of Bank Negara's 2004 annual report.

"If the recovery takes place in the second half of the year in the electronic cycle, if interest rates still remain below the neutral level, if oil prices come down under US$50 a barrel, then these are positive trends and we will move closer to the six percent.

"However, if the reverse happens, then it will be less," Zeti said.

Growth in services was forecast at 5.7 percent, against 6.7 percent in 2004, while agriculture growth would slide to 3.3 percent from five percent, and mining would moderate to five percent from 4.1 percent.

Construction would likely fall for a second straight year, declining one percent compared to a 1.9 percent fall in 2004, on less government spending on infrastructure projects.

Lower interest rate

Private sector expenditure was expected to slow to 8.7 percent from 11.1 percent in 2004, while public investment was seen falling 11.6 percent, against a decrease of 3.5 percent in 2004.

Zeti said interest rates would remain low to support the economy.

She said the ringgit peg of 3.80 to the dollar, fixed since September 1998, remained "sustainable" despite the dollar's weakness and stressed any change would be made on "long-term structural considerations."

The peg did not deter investors as there was some RM18 billion in foreign funds coming into the country last year, and this would likely be sustained, she said.

Inflation was projected to rise to 2.5 percent in 2005, from 1.4 percent in 2004, but Zeti said it remained "tolerable" and dismissed fears of inflationary pressure.