WASHINGTON, April 28 (Bernama) -- The World Bank has projected moderategrowth for Malaysia of around 5.25 percent in 2005 and 2006 after theeconomy expanded by 7.1 percent last year, the highest annual rate sincethe financial crisis.

The projection reflects a more sober projection than the InternationalMonetary Fund (IMF) which forecasts six percent growth for 2005 in itsrecent report called "Article IV" on Malaysia following consultations withthe Malaysian government.

East Asia's emerging economies are projected to grow by six percent thisyear as policy makers face the delicate challenge of responding to areduced pace of global trade expansion, especially in electronics, slowinggrowth in China, higher oil prices, and large dollar inflows to theregion, according to the latest East Asia and Pacific Regional Update, theWorld Bank's twice-yearly look at the region's economies.

Despite the horrendous loss of life, the Regional Update noted the Dec 26tsunami is expected to have a minor impact on overall economic growth inthe two most seriously affected East Asian economies, Indonesia andThailand.

The six percent forecast growth for emerging East Asia, which includes thetsunami-affected countries, is slightly down from last year's cyclicalpeak of 7.2 percent, but should be more sustainable, with balancedcontributions from exports, consumer spending, and investment, the WorldBank said.

Emerging East Asia comprises Developing East Asia (China, Indonesia,Malaysia, the Philippines, Thailand and Vietnam) and four NewlyIndustrialised Economies (Hong Kong, South Korea, Singapore and Taiwan).

In Malaysia, manufacturing production grew by only 9.8 percent in 2004,reflecting the slowdown in global demand in semiconductors in the secondhalf of the year, the World Bank said.

Value-added in the services' sector rose by 6.7 percent, while miningoutput increased by 4.1 percent, driven by higher production of naturalgas and crude oil.

The five percent growth in agricultural output was underpinned by anexceptionally strong performance of the palm oil sector in the lastquarter, reflecting higher prices, the bank added.

The construction sector contracted by 1.9 percent, as the completion ofseveral large projects and sharply lower civil engineering activities morethan offset sustained growth in both the residential and non-residentialproperty segments.

Looking ahead, in view of the anticipated decline in external demand forelectrical and electronics products and the expected decline in commodityprices (crude oil, palm oil and rubber), export is projected to moderateto 7.5 percent this year and to seven percent in 2006.

Merchandise imports rose by 26.3 percent in value terms, spurred by asurge in imports of capital goods (36.1 percent), and by sharply higherimports of consumption goods (24.1 percent). Imports of intermediate goodsrose by 22 percent.

Looking ahead, import growth is projected to average about 6.5 percentthis year and six percent in 2006, in line with the anticipated lowerinvestment and export growth, the World Bank said.

Meanwhile, private consumption grew by 10.1 percent, spurred by acombination of income effects from continued firm commodity prices andexport earnings; wealth effects from improved employment prospects andhealthy returns from Bursa Malaysia and higher household debt financing inan environment of sustained low interest rates.

All of these effects are expected to abate somewhat, and privateconsumption is expected to moderate to 8.5 percent in 2005 and sevenpercent in 2006, the World Bank said.

Public sector consumption, which grew by 6.6 percent in 2004, is projectedto rise by 4.5 percent this year and by three percent in 2006.

After having risen in the first half of 2004, to 124 points, the businessconfidence index (BCI) declined to 97.3 points in the fourth quarter,below the 100-point threshold level.

Private domestic investment is projected to rise more moderately, by 9.75percent this year and seven percent in 2006.

Real growth in public investment is projected to decline by about 11.5percent in 2005 and 6.5 percent in 2006 in line with further fiscalconsolidation.

Inward foreign direct investment (FDI) almost doubled in 2004, to US$4.7billion (RM17.9 billion), directed evenly to services, manufacturing, andoil and gas sectors.

Merchandise exports grew by 20.8 percent in value terms, supported by bothhigher export volumes (16.1 percent) and prices (3.6 percent). Exports ofmanufactures were bolstered by a 15.3 percent increase in the demand forelectrical and electronics products (accounting for over 53 percent oftotal exports), while wood products, steel and metal products, as well aschemicals and chemical products also recorded robust growth.

Higher oil prices caused exports of crude oil to rise by 36.1 percent,reflecting higher prices which strengthened by 34.8 percent to an averageof US$40.80 per barrel.

Exports of liquified natural gas (LNG) also rose sharply. Agriculturalexports rose by a moderate 7.4 percent, while exports of rubber postedvery strong growth (45.1 percent), supported by rising prices and highervolumes.

Net international reserves of Bank Negara Malaysia rose to $73.2 billionby mid-March 2005, equivalent to over eight-and-a-half months of retainedimports and over six times short-term external debt. Reserves havecontinued to be bolstered by sustained repatriation of export earnings,and rising inflows of portfolio investments.

Portfolio inflows surged by RM 33.1 billion, reflecting renewed activeforeign participation in both Malaysian equities and debt securities.

Total external debt rose by $2.8 billion to $51.9 billion by end-2004, or44.1 percent of gross domestic product (GDP).

Following a gradual increase since early 2004 through September,year-on-year consumer price inflation rose sharply in the last quarter of2004 to 2.1 percent by end-December 2004, as a result of the imposition ofhigher excise duties on cigarettes and alcohol, and the reduction insubsidies on fuel products.

Average inflation edged up to 1.4 percent last year, from 1.2 percent in2003.

The increase in year-on-year annual inflation continued throughend-February 2005, reaching 2.4 percent. Core inflation (excludingprice-controlled, as well as price-volatile, items and items subject toone-off price adjustments) remained subdued in 2004, averaging onepercent.

Producer price inflation rose steadily throughout 2004 to an average of8.9 percent.

The World Bank noted that the overall fiscal deficit of the federalgovernment declined further, to 4.3 percent of GDP, reflecting the sharpdecline in development expenditures (to 6.4 percent of GDP, from 10percent of GDP in 2003).

Effective April 1, 2005, the Bank Negara foreign exchange administrationrules were liberalised further, including increases in the limits onoverseas investments, retention of foreign currency accounts, foreigncurrency credit facilities, hedging, and domestic borrowing bynon-resident-controlled companies.

Approvals were given to five foreign stockbroking firms and one globalfund for establishing operations in Malaysia.

At end-2004, total non-performing loans (NPLs) of the banking systemdeclined to RM60.4 billion, equivalent to 7.6 percent of total loans,while risk weighted capital in the banking system remained strong at 13.8percent of banking system assets.

Danaharta has received RM29 billion of the total expected recovery ofRM30.8 billion. Of the amount, RM23.6 billion had already been convertedto cash to help retire government bonds, and Danaharta has redeemed 93percent of the zero-coupon bonds to finance its purchase of NPLs.

-- BERNAMA