Malaysia's economy is expected to meet the official growth forecast of 6.0-6.5 percent this year and expand at more than 5.5 percent next year, the government said today.

National Economic Action Council (NEAC) executive director Mustapa Mohamed said gross domestic product (GDP) growth for 2004 was on track and in 2005 it is likely to be higher than the 5.5 percent forecast by the Malaysian Institute of Economic Research (MIER).

"We will do better than the MIER forecast," Mustapa told a news conference at the presentation of a report by the independent think-tank.

"The feel-good factor is still there. You can sense the bullishness in consumer sentiment, among investors," he said.

On GDP growth for this year, Mustapa said that "barring any unforeseen upheavals, the economic prospects for this year are likely to remain favourable.

"We are confident that the official forecast growth rate of 6.0-6.5 percent for the whole of 2004 is achievable," he said. MIER has predicted growth of 6.7 percent.

External factors

Mustapa warned, however, that global growth could be affected by an economic slowdown in the United States and China against a backdrop of a rise in US interest rates, a high US current account deficit and increased oil prices.

"While all these factors pose a threat to all the economies including Malaysia's, our fundamentals remain strong and the outlook for 2005 remains encouraging, driven by a strong external sector and continued growth in domestic spending," Mustapa said.

GDP "is likely to perform well in the second quarter judging by the April and May trends," MIER said, citing industrial production growth in May of 14 percent year-on-year while exports rose 20.5 percent and imports 28 percent in the same month.

It warned however that "in view of the impact of some moderation in China's growth and high oil prices on the global economy, Malaysia's growth could possibly moderate somewhat in the second half of 2004."

Malaysia posted higher-than-expected 7.6 percent year-on-year growth in the March quarter, which Mustapa said was the fastest in more than three years.

Domestic demand will stay resilient and will continue to be spurred by a low interest rate environment, a private sector revival and the government's recent announcement of an additional RM8.5 billion in public spending, MIER said.