Thursday, May 28, 2009

Malaysia Sliding Towards Deep Recession

. Thursday, May 28, 2009

By stockOzone team

Malaysia expects a deeper recession this year, with its export-dependent economy likely to shrink between 4 and 5 percent, Prime Minister Najib Razak said Thursday.

The government had previously forecast the economy to contract 1 percent in Malaysia's first recession since 1998.

Najib, who is also finance minister, said the government had to revise the figure due to "very weak external demand" that has hit the country's exports.

Gross domestic product slumped by a sharper-than-expected 6.2 percent in the first quarter from a year earlier, as exports plummeted 25 percent and private investment fell 26 percent, he said. The economy also shrank from the previous quarter, marking its first quarterly contraction in eight years.

Najib said the new GDP forecast was "realistic" unless the global financial crisis becomes even more protracted.

"There are knock-on effects because of worsening external demand. The second half this year should be better. If America and Europe recover, we will be on track in getting a positive growth in the fourth quarter," he told reporters. "We expect next year to be positive (growth)."

The central bank has said the economy's slump in the first quarter was largely due to a 17.6 percent contraction in manufacturing, as electrical and electronics exports plunged amid weak global demand. GDP shrank 7 percent from the fourth quarter.

Construction was the only sector of the economy to expand in the first quarter, growing 0.6 percent due to new ommercial and residential developments.

Najib said the government would accelerate the implementation of projects under fiscal stimulus measures totaling 67 billion ringgit ($18.6 billion).

He said the government plans to further loosen guidelines for foreign investors under its economic liberalization plans, but didn't say when this will be announced. Malaysia has recently liberalized part of its services sector to boost the economy.

Najib reiterated that Malaysia's banking sector was "not only healthy but resilient and flushed with liquidity."

Moody's Investors Services recently placed nine Malaysian banks on review for possible downgrade of their deposit and debt ratings.

Disclosure: Author does not own any of the stocks discussed here.

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