KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) think-tank has maintained its 4.2 per cent growth outlook for Malaysia this year.
It expects domestic demand to continue to steer economic activities against a sluggish external sector.
Executive director Dr Zakariah Abdul Rashid said consumption and investment will drive private sector spending and improve to 6.6 per cent in 2017.
"Public investment is expected to (offset) shortcomings by growing at 1.4 per cent this year, a turnaround from a negative growth of 1.0 per cent last year," he said at the national economic outlook conference 2017-2018 today.
Although export demand is expected to improve next year, MIER expects growth in 2017 to edge up moderately at between 4.5 and 5.5 per cent.
Current account balance is also expected to rebound next year, as export demand improves further.
Zakariah also expects the ringgit to remain depressed versus the US dollar, which will put more pressure on Malaysian borrowers, including the government, to serve their foreign currency dominated debt.
International Monetary Fund (IMF) director of the regional office in Japan, Chikahisa Sumi, warned of vulnerabilities with the continued reliance on credit.
Growth needs to be reinvigorated and distributed to ensure it stays durable.
At the conference, Asian Development Bank (ADB) assistant chief economist Dr Joseph Ernest Zveglich warned of falling trade and rising protectionism, pointing to a large number of non-tariff measures in force.
The increased protectionism could further undermine the region's weak exports.
Capital flow disruption due to the monetary policies of advanced economies has complicated macro management.
Manila-based ADB projected Malaysia to grow by 4.1 per cent in 2016 and 4.4 per cent in 2017.
Both the IMF and the ADB, in their growth projections, said Asia remains the global growth engine.
The acute anxiety earlier in the year has faded, even as the exchange rate has steadily depreciated.