Malaysia sees better economic growth in 2008

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Putrajaya, Malaysia, Feb 4 : Malaysia's economy will grow by at least 6% in 2008, a government minister said on Monday, confident the country can tame inflation and weather a possible US recession. Surging food and oil prices coupled with a darkening global outlook are threatening to push Malaysia's official 2008 growth forecast of 6-6.5% out of reach, at a time when the government is expected to call for snap polls. But Malaysia's second finance minister sought to allay fears of a sharp slowdown in the economy.

"If things are not too good, it wil be closer to 6 (%). If things improve and there is a turnaround, it will be closer to 6.5," Nor Mohamed Yakcop told Reuters in an interview in his office in the sprawling administrative capital of Putrajaya. "The range was certainly set expecting some problems in the United States. At this point of time, we believe we will at least get 6%," said Nor Mohamed, who helped engineer Malaysia's recovery from the 1997/98 Asian financial crisis. Trade-driven Malaysia's economy rose at its fastest annual pace in more than three years in the third quarter despite a slump in its key tech exports, shielded by record commodity prices and a boom in domestic consumption. Malaysia is a net crude oil exporter and the world's second-largest producer of crude palm oil. But some economists are worried the wheels could come off as a global credit crunch, weakening US demand and high oil prices knock the wind out of the global economy.

Quickening inflation is compounding matters for Malaysian policy makers. Analysts are worried that an interest rate hike could stifle domestic spending and rob the economy of an increasingly key source of growth. At 3.5%, Malaysia's official interest rate is among Asia's lowest policy rates.

A stronger ringgit currency - the other policy tool to counter inflation - could further hurt Malaysian exports at a time of slowing global demand. But, Nor Mohamed said inflation would be under control. "It will not cause a problem because the government, over the years in similar circumstances, has ensured that inflation will not burden the citizens," said the 60-year-old former central banker. "The government has got some steps put in the process to make sure that inflation and the higher cost of goods does not burden the people," he added, but declined to elaborate.