THE Malaysian economy, bolstered by the RM60 billion second stimulus package and a likely cut in interest rates, should see signs of improvement in the second half of the year, economists said.

What is important is that the measures are implemented as soon as possible, they added.

With flattish growth projections ranging between 1 per cent and - 1 per cent, the economy is facing greater downside risks and will likely enter a technical recession in the first half of the year.

"Confidence is critical now and, with fast implementation, the package can help industries and people directly. Speed is the necessity, especially since globally there is (still) no end to the financial crisis," Maybank Investment Bank chief economist Suhaimi Ilias said.

He said the global crisis hit Malaysia's economy hard in the fourth quarter of last year, with gross domestic product growth of only 0.1 per cent, and the likelihood is that it will be prolonged this year.

With the RM7 billion first package "starting to work" and the second stimulus package, Suhaimi expects the fourth quarter of 2009 to show some growth after falls in the first three.

HSBC Bank senior Asian economist Robert Prior-Wandesforde, meanwhile, expects the second stimulus package to have its biggest effect about the same time as Bank Negara Malaysia's interest rate cuts are being felt and a China-led regional trade recovery takes hold.

He cautioned, however, that the ambitious stimulus programme would also mean that the budget deficit would be bigger than projected.

"The measures are (also) too late to provide much support to growth in the first half of the year when the economic pain will be at its maximum," he said.

US investment bank Citi's vice-president of Asia-Pacific economics and market analysis, Kit Wei Zheng, said the stimulus package will probably cushion the impact, but not prevent a recession.

"While there are ample domestic savings in theory to absorb the additional net issuance, risk of sovereign credit downgrade may constrain private-sector appetite for Malaysian Government Securities," he said, adding that the final deficit could possibly breach 8 per cent of gross domestic product (GDP).

RAM Holdings chief economist Dr Yeah Kim Leng, however, does not expect the budget deficit to be a major concern given that the government debt level accounts for 40 per cent of the GDP.

"As long as it is kept manageable over these two years, it will not pose a major concern since it can be financed domestically given our ample liquidity ... compared to countries that depend on borrowing elsewhere," he said.

(c) 2009 New Straits Times. Provided by ProQuest LLC. All rights Reserved.

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