M'sian economy risks recession next year

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KUALA LUMPUR, Oct 16 (AFP): A leading Malaysian think tank today slashed its 2009 economic growth forecast for the country to 3.4 per cent and said there was a risk of recession if the US economy tumbles.
The influential Malaysian Institute of Economic Research (MIER) said the economy was expected to expand by 5.3 per cent in 2008 after a strong first half but that it would deteriorate in the new year.
It cut its 2009 forecast from 5.0 per cent to 3.4 per cent, in contrast to the government which in its 2009 budget unveiled in August predicted 5.4 per cent growth next year. The economy grew by 6.3 per cent in 2007.
"In the first half of the year the Malaysian economy did well but we don't think this will be the case for the rest of the year given the flagging global economy," MIER executive director Mohamed Ariff told a press conference.
"If the US economy goes into some kind of recession in... the first quarter or second quarter (of 2009) we think somewhere in the middle, second or third quarter, we may experience (technical recession)," he said.
"There is a 40-per cent chance that Malaysia will register technical recession in 2009, meaning two quarters of negative growth and a 30-per cent chance it could be a real recession lasting more than two quarters."
However, Ariff said he did not expect a recession to be as severe as the 1997-98 regional financial crisis when the economy contracted sharply.
Malaysia's inflation jumped to a 26-year high of 8.5 per cent in August, driven by the escalating cost of food and fuel, Ariff said that on the bright side, Malaysian banks were fundamentally strong and this would help keep the economy on the right footing, although there could be further risk as the crisis unfolds.
"All banks are adequately capitalised and the NPL (non-performing loans) problem actually for now is a non-issue because it is less than 3.0 per cent of total bad loans, which is considered very low by any standards," he said.