MIER maintains GDP forecast for 2007 at 5.70%

KUALA LUMPUR, Oct 24 (Bernama) -- The Malaysian Institute of Economic Research (MIER) has kept its projection of the country's gross domestic product (GDP) for this year at 5.7 percent but revised its 2008 GDP forecast to 5.4 percent from 5.8 percent.The private think tank said it was maintaining the 2007 forecast due to stronger growth in the services sector and cited the US subprime woes as one of the contributory factors for its downward revision of next year's GDP projection."In the light of the IMF (International Monetary Fund) downward forecast revision for the world economy, we are lowering Malaysia's growth forecast for next year, barring a recession in the US economy," MIER executive director Dr Mohamed Ariff Abdul Kareem said Wednesday.He said although domestic demand is expected to be propped up prior to the general elections, the global economy could grow at a slower pace owing to the fallout from the sub-prime turmoil.The rise in oil prices will be another factor that has the potential to derail the global economy, he told reporters after releasing MIER's economic outlook for Malaysia for the third quarter of 2007.Asked whether Malaysia will raise its interest rate in the near future, Mohamed Ariff said there was no urgency to increase the country's interest rate at the moment due to a glut of liquidity in the system.According to him, the abundant liquidity at present will keep interest rate down."I think Bank Negara Malaysia will resist any temptation to increase the rate in the foreseeable future," he said.However, Mohamed Ariff said should the government decide to cut oil and gas subsidies and raise toll rates next year, it could result in a further increase of the inflation rate and push the authorities to raise the interest rate."There are concerns that fuel and gas subsidies may be cut again early next year, aside from the regular hike in toll rates. This can lead to changes in our forecast," he said."We expect the inflation rate to be below three percent next year but it might increase, depending on adjustments made by the government," he added.MIER has estimated the inflation rate to ease to 2.2 percent this year from 3.6 percent last year on the back of a stronger ringgit.The think tank has forecast the inflation level to be at 2.7 percent next year.The central bank has kept its benchmark interest rate unchanged at 3.5 percent at 11 policy meetings held since April last year.