RTTNews - The Malaysia economy is set to contract as much as 5% in 2009, Prime Minister Najib Razak said Thursday. The economy is now expected to shrink in the range of 4% to 5% this year.

This is much severe than its earlier estimate, when the government forecast the economy to grow 1% or by a worse 1% decline. If GDP falls by 5% this year, it would be the largest decrease since the Asian financial crisis in 1998.

However, the economy is expected to be better in the second half of this year and to turn positive on the fourth quarter, he told reporters.

In the first quarter, the export dependent economy had contracted 6.2% after expanding a meager 0.1% in the fourth quarter. Exports were down sharply by 20% following a significant contraction in manufactured exports, as well as lower commodity exports.

Earlier in the week, the Malaysian central bank had retained its policy rate at 2%. The last change in the interest rate was in February, when the central bank cut the rate by 50 basis points to 2%. The central bank said the indicators suggest potential for a gradual improvement in the second half of the year.

Elsewhere in the region, the Philippines confirmed on Thursday that it is nearing recession. The country's GDP sank by a seasonally adjusted 2.3% quarter-on-quarter in the first three months of 2009, the lowest for the past 20 years.

The Washington based International Monetary Fund said on May 6 that it sees GDP declines in Japan, Australia, New Zealand, Hong Kong, South Korea, Singapore, Taiwan, Malaysia and Thailand this year. The worst decline is forecast for the city-state economy of Singapore, which is expected to shrink 10% this year.

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