KUALA LUMPUR: The Malaysian Institute of Economic Research (MIER) has lowered its growth outlook this year to 4.5 per cent, saying external demand is not likely to be as strong as expected.
While commodity prices are showing signs of recovery, the slowdown in global trade and investment flows is expected to prolong, warned the think tank's executive director Dr Zakariah Abdul Rashid.
"Oil prices are expected to be sticky upwards, as the production agreement is believed to be fragile and may fail to bring down the supply glut," he told a media briefing held to announce the Fourth Quarter 2016 GDP outlook .
Growth in China and Japan are also possibly slower.
Dr Zakariah also highlighted that a rise in protectionist sentiment in developed economies, thanks to recent political developments across the world, will affect growth.
Domestic demand continues to be the engine of growth for this year, but growing at a slower rate of 4.6 per cent, as both private consumption and investment are expected to grow moderately.
Export demand has been downgraded to 1.3 per cent from an initial forecast of 3.0 per cent a year.
Stronger commodity prices are expected to strengthen the current account balance for the year.
On inflation, he said the level is anticipated to be higher at 2.7 per cent.
MIER has maintained its GDP growth projection for 2016 at 4.2 per cent, led by domestic demand.
For 2018, the economy is expected to grow at a faster clip of between 4.7 per cent and 5.3 per cent, as the think tank expects both domestic and export demand to improve further.