Malaysia's economy is forecast to grow by 5.5 percent in 2006, fueled by a pick-up in the electronics sector, firm commodity prices and domestic demand, a leading think tank said today.

The Malaysian Institute of Economic Research (Mier), also forecast growth at 5.8 percent for the next year.

"We feel the Malaysian economy will benefit from the rebound in electronics, firm commodity prices and resilient domestic demand," Mier executive director Mohamad Ariff Mohamad Kareem said in an economic briefing.

"Barring any unforeseen events, with a somewhat steadier global economy and a stable domestic situation, the growth rate could drift closer to its potential level (estimated at 6.0 percent), garnering at 5.8 percent expansion in 2007," he added.

However Mohamad Ariff warned inflation could pick up again in 2006 despite peaking in August 2005, with the government expected to further roll back oil subsidies.

"This could happen even if global oil prices ease further in 2006. Also, utility companies are asking for higher tariffs from the present highly subsidised rates," he said.

High in August

For all of 2005, inflation rose 3.0 percent compared with a 1.4 percent increase in 2004, a gain largely driven by oil prices, said analysts.

It hit a six-year high of 3.7 percent in August.

Mohamad Ariff said the inflation would likely rise to 3.5 percent in 2006, but may slow to 3.3 percent in 2007.

The ringgit, which is currently six to seven percent undervalued, would also likely strengthen, he said.