Malaysia set to return to 3.5pc growth next year, says Allianz

THE Malaysian economy is expected to contract by 2.5 per cent in 2009, before returning to a solid 3.5 per cent growth in 2010, Allianz Group chief economist Michael Heise said yesterday.

He said business activity should pick up in the second half of the year, in line with the stabilisation of world trade."As world trade finds its feet again, we expect the entire region to pick up from the second half of 2009.

Economic growth of 5.6 per cent in 2010 should be more than twice as high as this year," Heise said after a media briefing in Kuala Lumpur yesterday.He said the road to recovery will begin once export momentum increases in the second half of this year.

Heise said positive sentiments are already seeping in with rising private consumption, oil price and commodity prices down from their historic highs, countries loosening their monetary policy and launching national stimulus packages.

However, he warned that smaller export dependent countries in Asia's emerging markets must focus more to bolster domestic demand to continue growing in future."We can therefore expect the Asian emerging markets to try and keep their exchange rates relatively low versus the greenback to begin with," he said.

Heise also expects the Asian growth model to change because it is unlikely that the US will re-emerge as the source of powerful demand and import growth in the foreseeable future.

In the medium term, there is likely to be moderate growth to allow for various crisis bailouts to take their course."There will be a period of consolidation by the governments, and probably in Malaysia as well ," he said.