MIER: Govt may have to spend more to avoid recession

There is still a good chance that Malaysia will avoid a recession, but the government may have to spend more to do this, an independent think-tank said.

"We cannot rule out a recession entirely - it is not too remote a possibility as the situation is still too fluid.

"Once the commodity prices come down and stay there and manufacturing turns negative, there is a possibility," Malaysian Institute of Economic Research executive director Prof Datuk Mohamed Ariff Abdul Kareem said on the sidelines of an economic conference in Kuala Lumpur yesterday.

A recession is defined as two straight quarters of economic contraction.

The RM7 billion stimulus package announced by the government will only help to soften the blow of a global economic crisis.

"The magnitude of the impending crisis is too big to be contained by a stimulus package of this size," he said.

MIER is, however, confident that the Malaysian economy will register a growth rate of 5.5 per cent this year, exceeding the official target of five per cent.

Mohamed Ariff also pointed out that the government's strategy of trying to boost domestic demand or essentially consumer spending should also come with easier business policies to spur spending by companies.

The think-tank expects Malaysia to be "completely out of the woods" by 2011.

"Even if we don't face a negative (economic) growth rate, a zero growth rate can be as painful. Much depends on the recovery of the US economy but all indications are that it will not recover in less than two years," he added.

Mohamed Ariff expects Bank Negara Malaysia to cut the overnight policy rate (OPR) by another 25 basis points or a quarter of a percentage point, if domestic conditions worsen. The OPR determines banks' lending rates.

NST