The government as recently as December had put forth an estimate of 5-6 percent growth for 2012. Last year's growth stood at 5.1 percent, down from a 7.2 percent expansion in 2010.
Central bank governor Zeti Akhtar Aziz cited "a moderation of global growth," in issuing the forecast target in the bank's annual report.
She specifically cited downside risks like "an escalation in the eurozone sovereign debt crisis and much slower growth in our major trade partners."
However, she said growth would come out better than expected if the performance of major economies improved.
Inflation was expected to moderate to 2.5-3.0 percent amid lower global commodity prices and modest growth in domestic demand.
Yeah Kim Leng, chief economist with financial research firm RAM Holdings said the downward revision had been widely expected.
"It is in line with what we have been forecasting as a result of the weaker economic prospects of our trading partners and with Malaysia's growth now underpinned by domestic demand and private consumption," he said.
Prime Minister Najib Razak, who must call fresh elections by April 2013 and faces a strengthening opposition, has set a goal of Malaysia becoming a "high-income developed nation" by 2020.
He said last year that annual growth of at least 6.0 percent was needed to achieve that.
Under the plan, Najib aims to double per capita income to 48,000 ringgit ($16,000) by 2020.
The government has promised major infrastructure projects and financial market liberalisation to attract foreign investment and boost growth, but critics say the results have been limited.
"We will have to very markedly improve our growth rate in the next few years in order to offset the slower pace in this period to achieve the 6.0 percent target," Yeah said.
- AFP/cc
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