Malaysia’s economic growth slumps to 0.1%

By John Burton in Singapore
Published: February 27 2009 10:08 | Last updated: February 27 2009 12:03

Malaysia appeared to be on the brink of joining other Asian countries in recession as it reported on Friday that gross domestic product grew by only 0.1 per cent in the final quarter of 2008 from a year ago, the slowest rate in seven years.

The manufacturing sector contracted by 8.8 per cent in the period after posting positive growth for the past 26 quarters as exports slumped, particularly in the mainstay electronics industry. Exports in goods and services fell 13.4 per cent.

The latest data, which fell short of market expectations, is expected to increase pressure on the government to unveil a large stimulus package scheduled for March 10 to save jobs. The government may spend as much as M$30bn in the new budget proposal after injecting M$7bn in extra spending in November. The central bank recently has cut interest rates in three steps to 2 per cent to revive growth.

Malaysia does not give quarter-on-quarter growth rates, but the economy expanded by 4.7 per cent in the July-September period last year. Full-year GDP growth was 4.6 per cent against 6.3 per cent in 2007.

Economists said that Malaysia is unlikely to avoid a recession, its first since 1998, in spite of the stimulus package, although services expanded moderately by 5.6 per cent, down from 7.1 per cent in the third quarter.

Malaysia had predicted a growth rate of 3.5 per cent for 2009, but Najib Razak, the finance minister and incoming prime minister, recently conceded that the government will be forced to cut its forecast.

Several big electronics factories in Malaysia are being closed, raising fears that the unemployment rate could double to 6 per cent by 2010 if global demand remains weak. Retrenchments in the manufacturing sector rose by 86 per cent last year.

Malaysia also must deal with a sharp fall in price of its main commodities, including oil and gas and palm oil. The central bank warned that ”risks remain on the downside and recovery is likely to be slow and protracted.”

Copyright The Financial Times Limited 2009