KUALA LUMPUR - Malaysia's economy defied sliding oil and commodities prices to grow at its fastest pace in four years in 2014, underpinned by strong construction and manufacturing activity.
The net energy exporter, however, may start to feel the full brunt of weaker global oil and gas prices on its income in the months ahead, analysts say, and the authorities have few options to stimulate demand either with fiscal or monetary policy.
Strong economic growth could help dampen dissent over the imprisonment of opposition leader Anwar Ibrahim, who was jailed this week on a sodomy charge that many people believe was politically motivated.
But the government also faces pressures over a heavily-indebted investment fund 1MDB and the risk that its weak fiscal position could trigger a sovereign downgrade.
Gross domestic product for the fourth quarter grew 5.8 per cent, exceeding the median forecast of 5 per cent in a Reuters poll, and picking up from 5.6 per cent in the third quarter.
"The reason why Malaysia has been able to ride out this challenging period is because we have a diversified economy," Bank Negara Malaysia's governor Zeti Akhtar Aziz told a news conference on Thursday.
The stronger-than-expected momentum lifted full-year growth in 2014 to 6.0 per cent, the fastest pace since 2010, and beat economists' forecast of 5.8 per cent.
However, economists said that Malaysia's strong economic performance might not last as it confronts sluggish global demand for its exports and weak energy and commodity prices.
"This acceleration will likely prove short-lived as lower oil prices will be a major headwind for the economy this year," Krystal Tan at Capital Economics said in a note.
The consultancy noted that private consumption will likely weaken after the government raises the rate of the goods and services tax (GST) in April, and it will have to cut spending to achieve its deficit-reduction targets amid declining resource revenues.
Along with the spike in inflation that will come with higher GST, the central bank's scope for interest-rate cuts is limited because of capital flight risk, a weakening currency and weighty household debt.
The ringgit is the worst performer in Asia this year, down 3.3 per cent against the dollar, after a slide of more than 6 per cent in 2014.
The currency's sharp depreciation helped boost electronics exports at the end of 2014, but Governor Zeti said there was not a deliberate policy to weaken the ringgit. "I want to emphasise that the central bank of Malaysia does not rely on the exchange rate to conduct monetary policy."