Malaysia’s economy shrinks 6.2 percent

From Forbes.com
By Eileen Ng

Malaysia’s economy shrank a sharper-than-expected 6.2 percent in the first quarter, the central bank said Wednesday, setting the scene for the government to forecast a deeper recession this year.

The economy’s slump compared with a year earlier was largely due to a 17.6 percent contraction in manufacturing, as electrical and electronics exports plunged amid weak global demand, said Bank Negara Malaysia, the central bank.

It was the biggest fall in gross domestic product since the fourth quarter of 1998, when Malaysia fell into a recession during the Asian financial crisis. GDP shrank 7 percent from the fourth quarter.

“The financial crisis was more prolonged than expected. Export demand continues to remain weak. The external environment is still challenging. It is very likely that despite early signs of improvement, the (second quarter) will be very similar to the first quarter,” Bank Negara Governor Zeti Akhtar Aziz told a news conference.

Prime Minister Najib Razak, who is also finance minister, will announce a new GDP forecast for the full year on Thursday, she said, but declined to give details.

The government has forecast the economy will shrink 1 percent this year in the worst case scenario but officials have now acknowledged that the contraction will be more severe than expected.

Zeti said the central bank expects the economy to rebound in the second half and is confident of “positive growth” in the last quarter and into 2010 following the effects of the government’s fiscal stimulus measures totaling 67 billion ringgit ($18.6 billion).

She said the government’s fiscal support for the economy was a temporary measure and that Malaysia should recover quickly as its financial system remains resilient, inflation has eased and there is an improvement in the labor market as layoffs have stabilized.