Published March 4, 2009

M'sia economic conditions still challenging: Zeti

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(KUALA LUMPUR) Malaysia's economic conditions will 'remain challenging' in the coming quarters amid the global recession, central bank governor Zeti Akhtar Aziz said.

'Domestic conditions are expected to remain challenging,' she said in a speech in Kuala Lumpur yesterday.

Malaysia's open economy has been adversely affected by the worldwide financial crisis, she added.

Malaysia's economy expanded 0.1 per cent in the fourth quarter from a year earlier, the slowest growth in seven years. The central bank cut borrowing costs for a third straight meeting last week, saying that the risk that the economy will contract this year has risen.

'The smaller, open economies of emerging Asia are being swept away by the ongoing collapse of global trade,' said TJ Bond, chief Asia-Pacific economist at Merrill Lynch & Co in Hong Kong. 'Shocking fourth quarter growth numbers released in recent weeks have prompted us to lower our near-term forecasts for nearly every country in the region.'

Merrill Lynch predicts that Malaysia's economy will shrink 1.5 per cent this year and Credit Suisse Group expects a decline of 3.1 per cent. The last time that Malaysia posted an annual contraction was in 1998.

The economy expanded 4.6 per cent last year.

The government, which expects 2009 growth to slow to an eight-year low of 3.5 per cent, will revise the forecast next month, Finance Minister Najib Razak said on Feb 17.

He will announce a second stimulus package next Tuesday to prevent the country from following Asian exporters, including Singapore and Hong Kong, into recession as sales of Intel Corp chips and IOI Corp palm oil slide.

The second spending plan may be as large as RM30 billion (S$12.5 billion), Citigroup Inc said last month. The additional allocation may exceed RM10 billion to RM15 billion, Trade Minister Muhyiddin Yassin said last week.

Mr Najib, who is also deputy premier, is due to replace Prime Minister Abdullah Ahmad Badawi by the end of the month and needs to prevent the economic slowdown from fuelling public discontent after the government suffered its worst election result in half a century last year.

The government unveiled a RM7 billion plan in November and the central bank has cut its overnight policy rate to 2 per cent, the lowest since the benchmark was introduced in April 2004, to bolster local consumption as companies cut jobs amid faltering demand. -- Bloomberg