Published January 2, 2009

Malaysia may spend more to boost economy in 2009

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(KUALA LUMPUR) Malaysia's prime minister-in- waiting says he may use another fiscal package to stimulate the sagging economy, warning that the global financial meltdown could result in job losses at home in 2009.

'What we are facing are the effects of a global meltdown which will impact on our economy adversely,' Deputy Prime Minister Najib Razak said in an interview published in the latest issue of The Edge business weekly.

In November, the government unveiled a plan to inject RM7 billion (S$2.9 billion) into the economy, which is forecast to grow by 3.5 per cent in 2009, down from a target of 5.4 per cent. But some economists have warned growth could fall below 2 per cent.

Mr Najib, who is scheduled to take over as prime minister in March, said he is not averse to another stimulus package to boost spending.

'My priority is that I really want to save the rakyat (people) from having to go through hardships if the real economy is impacted,' he said in the interview.

In a separate interview published on Wednesday in the New Straits Times daily, Malaysia's central bank chief Zeti Akhtar Aziz also indicated the government may need to spend more.

'If conditions in the major economies worsen, then further stimulus will definitely be necessary to prevent our economy from slipping into negative territory,' Ms Zeti said.

Further spending may widen the government's budget deficit - targeted at 4.8 per cent of gross domestic product next year - but it will only be temporary, she said.

Mr Najib said a deficit of more than 5 per cent was tolerable as long it was for only one or two years.

He said that as a result of the global economic slowdown, Malaysia may have to face businesses 'downsizing and retrenchment of workers in the private sector'. 'But there is a saving grace - inflation is expected to moderate next year' because of falling fuel prices, he said.

Inflation could be in the region of about 4 per cent or less in 2009, according to Mr Najib. Inflation in July and August hit its highest level in nearly three decades at 8.5 per cent.

Mr Najib also said foreign investors were beginning to see political stability returning after a period of uncertainty following the March 2008 general elections when the ruling coalition suffered a big drop in its majority.

The poor result triggered a virtual revolt against the leadership of Prime Minister Abdullah Ahmad Badawi, who agreed to step down in favour of Mr Najib in March. -- AP