Economy shrinks 6.2pc, but Malaysia says recovery in sight

By Rupa Damodaran
Published: 2009/05/28

THE Malaysian economy shrank 6.2 per cent in the first three months of the year, its first quarterly drop since 2001, but Bank Negara Malaysia (BNM) maintained that a recovery is due towards the year-end.

The contraction was worse than the negative 3.5 per cent that economists expected, although BNM said it was within its expectations."Export demand continues to be weak and the environment is still challenging.

Despite early signs of improvement, the second quarter will be similar to the first," BNM governor Tan Sri Dr Zeti Akhtar Aziz said at a media briefing in Kuala Lumpur yesterday.Prime Minister Datuk Seri Najib Razak, who is also the Finance Minister, will announce the revised 2009 gross domestic product (GDP) forecast for Malaysia today.

The current official forecast ranges from a 1 per cent growth to a 1 per cent contraction.Zeti said there was still a lot of uncertainty and the extent of Malaysia's recovery would depend on external conditions as well as a positive local environment.

Malaysia has announced plans to spend a total of RM67 billion to stimulate the economy, while the central bank has cut the key interest rate aggressively.Economists are hopeful that similar measures by other countries around the world may hasten a global economic recovery.

Zeti said the first-quarter contraction was contributed largely by factories running down their existing stocks rather than cranking up production.Had it not been for a strong diversified domestic economy, the contraction would have been worse.Asked if Malaysia was already in a recession, Zeti said it was more constructive to see if Malaysia could come out of the economic downturn.

"We are not in a financial crisis, while the household and business sectors are not over-leveraged."We also have stability in the labour market, commodities market and stock market, which together with the decline in inflation will improve purchasing power, plus the measures (in place) will support the prospects for a positive growth into the final quarter and into 2010."