PUTRAJAYA: The government has revised downwards the country’s gross domestic product (GDP) forecast for 2009 to a contraction of between 4% and 5% from an earlier projection of  -1% to 1%, after a weaker-than-expected export performance, Prime Minister Datuk Seri Najib Razak said yesterday.

“The sector pulling down the economy is exports, which plummeted more than expected,” he said.

Najib said the decline in exports had affected corporate earnings here, especially those in the manufacturing sector, which in turn affected private consumption, while the weak external environment had led to a fall in private investment, as foreign direct investments also fell.

He said the revised GDP projections were based on a realistic view of current conditions, adding that the worst-case scenario would depend on the performance of the US and European economies.

“Our recovery depends on world economic recovery, and is contingent on what happens in the US and Europe,” he said.

He added that the government’s downward revision to GDP was also premised on the more-than-expected slump in the global economy, as the International Monetary Fund also last month revised its global growth projections for 2009 to a contraction of 1.3%, from a growth of 0.5% previously and its global trade projections to an 11% decline from 2.1% growth.

Speaking at a media briefing here yesterday, Najib added Malaysia’s economy could recover by year-end, driven by its RM67 billion stimulus spending.
“The second half of the year should be better, and we are hoping 4Q09 to show positive growth,” he said.

He said, however, given the negative growth expected in the second and third quarters, following a 6.2% contraction in 1Q09, the economy would register a negative growth for the year despite a turnaround in 4Q.

He added the Malaysian economy appeared to be on the brink of bottoming out, although the caveat to it was that no one knew the extent of the US and European banking crisis.

“The stress test on US banks has shown that the industry needs US$65 billion (RM226.2 billion) for further capitalisation, but this may not be enough,” he said.

Meanwhile, he said there had already been early signs that the government’s stimulus spending had impacted the Malaysian economy positively, as shown by the recent increase in commodity and stock market prices, and improved investor sentiment.

He also said the government had sufficient funds to finance the stimulus packages.

Najib said the government would consider introducing further pump-priming measures if the economy took a turn for the worse and was closely monitoring the need for more spending.

On the country’s banking system, he said the industry was resilient and flush with liquidity. He also said the government’s recent measures to liberalise the banking industry were sufficient.

He added that the new guidelines for the Foreign Investment Committee were in the final stages of being formulated and would be announced soon.