Malaysia's economic growth is expected to slow to 5.7 percent this year from an estimated 7.2 percent in 2004, with exports vulnerable to softer demand in industrial countries, an independent think tank said Tuesday.

"As the pace of expansion in industrial countries moderates, Malaysia's export performance may cool down while foreign direct investment inflows could be affected as well," the Malaysian Institute of Economic Research (MIER) said.

However, with the threat of high oil prices abating, the deceleration in global growth could be less severe than expected, executive director Mohamed Ariff was quoted as saying by the national news agency Bernama.

"Assuming modest but steady growth in the world economy and reasonably buoyant domestic demand in 2006, we are confident that Malaysia can still register growth of 5.3 percent next year," he added.

Growth moderated to 6.8 percent in the third quarter of 2004 from 8.2 percent in the second and 7.8 percent in the first, bringing average growth during the first three quarters to 7.6 percent.

Gov't: 6.0 percent for 2005

The government said earlier this month it would stick to its growth forecast of 7.0 percent for 2004 and 6.0 percent this year, with little impact expected from the tsunami disaster, which killed some 68 Malaysians.

MIER said that on the demand side, the private sector was expected to make a substantial contribution to growth in 2005, with private consumption projected to grow at a brisk pace of 7.8 percent.

In line with policy to gradually reduce the fiscal deficit, public investment is projected to contract 5.5 percent in 2005 as the government makes a serious attempt to cut back on unnecessary projects.

The government plans to reduce the fiscal deficit to 3.8 percent of Gross Domestic Product in 2005 from 4.5 percent in 2004.

On the supply side, Mohamed Ariff said that all major sectors are projected to show growth in 2005 with the manufacturing sector to be the key driver over the next two years, followed closely by the services sector.