Malaysia's growth rate is expected to have slowed in the second quarter, paving the way for a full-year result of just 4.7 percent, well below government forecasts, a JP Morgan economist said today.

Economic expansion in the three months to June is likely to come in at 3.75 percent, from 5.7 percent in the previous quarter, due to weaker external demand, said JP Morgan's head of emerging market research team David Fernandes.

"The slower second quarter growth is a bump on the road," he told reporters in a briefing.

However, "the second half will be very solid, leading to 4.7 percent growth for the full year," he said, adding that he sees the economy growing faster at 5.5 percent in 2006, compared to growth of 7.1 percent in 2004.

The comment is the latest in a series of signs that Malaysia may not meet a target of 5.0-6.0 percent expansion in gross domestic product (GDP) in 2005.

Asked why his GDP growth forecast was below the government's projection, Fernandes said: "I would not characterise it as pessimistic. Our growth forecast is at the lower end of Bank Negara Malaysia's forecast."

Prime Minister Abdullah Ahmad Badawi said last week that the government may review the economic growth forecast in view of skyrocketing oil prices.

Double-barrel growth

Fernandes said the improvement in the second half of 2005 will be driven by "double-barrel export growth" in the form of electronics and oil, as well as stronger domestic demand in line with the expected strengthening of the US economy.

He also said he expects the central Bank Negara to keep policy rates steady until domestic demand strengthens.

Fernandes said JP Morgan expects the authorities to maintain a wait-and-see approach to the ringgit currency's peg to the US dollar, which has been in place since September 1998 but is now under pressure.

Speculation that China may adjust its own currency peg to the dollar and allow the yuan to rise has also lent strength to the belief that Malaysia might follow suit.

"Valuation strains and macroeconomic imbalances are not yet apparent, and there is little merit to pre-empting a China move when the extent and shape of a Chinese yuan move remains unknown," Fernandes said.