Business and Finance

Malaysia’s economy may suffer a “significant” contraction in the first six months of this year before improving in the second half as other nations recover from the financial crisis, Central Bank Governor Zeti Akhtar Aziz said.

Southeast Asia’s third-largest economy may shrink 1 percent in 2009 or expand that amount at best, Bank Negara Malaysia said in its annual report in Kuala Lumpur today, reiterating a March 10 government forecast. Gross exports may plunge 25 percent as demand for electronics and palm oil falls, the central bank said.

“The Malaysian economy will experience the full impact of the global recession in 2009,” Zeti said in the report. The growth forecast “is dependent on stability being restored in the crisis-affected economies in the second half.”

Malaysia’s biggest export markets in the U.S., Japan, Singapore and Europe have entered recessions in a deepening slump in the global economy, forecast by the World Bank to shrink this year for the first time since World War II. Zeti said today the government and the central bank, which has already slashed interest rates to record lows, is able to take further action.

Asian governments have unveiled more than $700 billion in stimulus plans to counter tumbling exports. Zeti said she has reactivated a corporate debt-restructuring committee, used a decade ago in the Asian financial crisis, that’s ready to help companies weather the crisis.

Timely Spending

A “timely” implementation of 67 billion ringgit ($18 billion) of spending plans by Malaysia’s government is needed to achieve the higher end of the 2009 growth forecast, the central bank said. An annual contraction in the $181 billion economy this year would be the first since 1998.

“The financial and economic situations globally remain fluid,” said Suhaimi Ilias, chief economist at Maybank Investment Bank Bhd. “It remains to be seen whether global fiscal stimuli can lift the economy later this year.”

There are “significant uncertainties” to the global outlook, including the possibility the turmoil in financial markets may last beyond 2009, the central bank said.

“There is, at this stage, no visible sign that the global financial crisis has abated,” Zeti said payday loans in one hour. “Delays in addressing the financial sector problems in several of the advanced economies have increased the prospect of a more protracted and deeper economic downturn.”

Further Measures

Bank Negara Malaysia lowered its benchmark interest rate for a third straight meeting last month to 2 percent and reduced the amount of money lenders need to set aside as reserves.

While there’s room for further steps, including monetary measures, Zeti said the central bank is now focused on improving the flow of credit.

“Our focus is on access to financing,” she said. The cost of borrowing is “very favorable” and “very accommodative.”

Easing inflation has allowed the central bank to cut interest rates to support domestic demand. Consumer-price gains will slow this year, averaging 1.5 percent to 2 percent compared with 5.4 percent in 2008 as global commodity prices and local fuel and utility rates fall, the central bank estimated.

“With the risk of inflation abating considerably, the balance of risk has shifted from inflation to growth,” the central bank said. There’s little chance of deflation, Zeti said.

Manufacturing, Exports

Malaysia’s manufacturing industry is forecast to contract 8 percent this year after growing 1.3 percent in 2008, the central bank said, amid declining overseas demand for electronics made by semiconductor assemblers including Malaysian Pacific Industries Bhd. Agriculture and mining may also shrink, while services growth may slow to 4.5 percent.

The decline in exports in February was probably less than the 28 percent drop in January, Zeti said.

Private-sector wage growth may slow to 2.7 percent from 5.9 percent, the central bank said. About 24 percent of companies surveyed by Bank Negara plan to cut jobs in 2009, the bank said.

“The manufacturing sector and to a lesser extent, the mining sector, will bear the brunt of the global recession,” said Azrul Azwar Ahmad Tajudin, an economist at Bank Islam Malaysia Bhd. in Kuala Lumpur.

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