Malaysia in recession, may be worse than '98: Goldman Sachs

Malaysia in recession, may be worse than '98: Goldman Sachs

Reuters, Kuala Lumpur

Malaysia is already in recession and the economic slump could
get worse in the next six months as consumption slows, Goldman
Sachs said.

"Over the next six months, we believe there will likely be
confirmation that this recession is deeper than that of 1998,"
analyst Adam Le Mesurier wrote in a report obtained by Reuters on
Monday.

Malaysia's economy has slowed for two consecutive quarters,
hurt by faltering export revenues and investments from the United
States.

Gross domestic product (GDP) grew 0.5 percent in the second
quarter and 3.1 percent in the first quarter, well below the 8.5
percent growth achieved in 2000.

Third-quarter GDP is due to be unveiled on Thursday.

The slowdown comes barely three years after the country slid
into its worst recession in decades following the onset of the
Asian financial crisis in 1997.

The GDP data released by the government are not seasonally
adjusted, leaving economists split on whether the country had
entered recession this year.

But Goldman considers Malaysia to be in a recession, it said
in its latest review of the country's economy.

"On a nominal growth basis, the swing in nominal GDP growth is
already the largest on record," the research house said. GDP
contracted 7.5 percent in 1998.

Goldman has cut its forecast for Malaysia's GDP to 1.0 percent
contraction in 2001 from 0.4 percent contraction previously, and
to 1.0 percent growth in 2002 from 2.3 percent growth previously.

"The main difference between now and 1997/98 is the degree of
the export sector's downturn," Goldman said.

It said the value of the country's exports on a year-on-year
basis, measured over a ten-year period had fallen significantly.

"The 1997/98 period represented a pause in the export sector's
expansion rate, whereas today exports are contracting
significantly," it added.

Slowing consumption, as measured by factors including car
sales and house mortgages, would lead to higher deflationary
pressures on the economy, making it harder for the government to
abandon its fixed exchange rate regime if it needs to, the
research house said.