International rating agency Standard and Poor's said today it still expects Malaysia's economic growth rate to reach 5.5 percent this year despite rising oil prices.

"We are sticking to a more conservative forecast of 5.5 percent, given the outlook for global economy and concerns over (declining) investments in Malaysia," said sovereign and international public finance ratings director Chew Ping.

The forecast takes into account the current high level of oil prices, but that factor is not expected to have a major impact on Malaysia because it is a net exporter of oil, he said.

Chew also said that Malaysia's foreign currency rating of "A-" with stable outlook "sits well", given the country's current fiscal and debt position.

But S and P no longer expects Malaysia to achieve a surplus by 2010 and forecasts budget deficits to remain at about two percent of gross domestic product through to 2010, he said.

Chew said that Malaysia's solid external liquidity position is unlikely to be affected by the widely expected revaluation of the ringgit, which is currently pegged at RM3.8 to the dollar.

"We don't see Malaysia's competitiveness or reserves being depleted as a result of a change in the ringgit peg," he said.

The central bank has predicted growth to slow to 5.0-6.0 percent in 2005, after 7.1 percent in 2004, its fastest pace in four years.

Construction down

Malaysia's economy expanded by 5.7 percent in the first quarter of 2005 against 5.8 percent in the fourth quarter of 2004, with all major sectors of the economy on the uptick except construction.

The private sector continued to be the key driver of growth, underpinned by "robust" consumer spending, the central Bank Negara Malaysia said in May.

S and P credit analyst Greg Pau said Malaysian corporates were expected to continue to post double-digit growth in revenue in the next two years.

He said sectors such as property, power, telecommunications, travel and leisure as well as consumer products have benefited from a better financing climate and stronger consumer spending.

Export-oriented and commodity sectors such as palm oil, petroleum and petrochemicals have also been boosted by near-record high prices due to rapidly expanding demand and a global supply shortage, particularly in Asia.

The outlook for these sectors remains stable to positive as the factors driving them are expected to continue for the next two to three years, Pau said.