WASHINGTON - The Malaysian economy is recovering from the impact of last year's global slowdown, the International Monetary Fund said in a report Tuesday.

"The Malaysian economy has entered a recovery phase and appears to be well placed to benefit from a global recovery," IMF directors said after annual consultations with the country's authorities.

Gross domestic product growth was expected to accelerate to 3.5 percent this year from 0.7 percent in 2001, IMF staff said.

Although private investment remained weak, the recovery was broad with the unemployment rate below four percent, inflation below two percent and factories using 80 percent of total capacity, the fund said.

Malaysia enjoyed a large surplus in both its current account and trade balance, the fund said.

Net outflows of capital had declined since the second half of 2001, reflecting greater confidence in Malaysia's economy and more attractive interest rates compared to the United States, it said.

External debt moderately higher

External debt rose moderately to 51 percent of gross domestic product in 2001, but it remained manageable, the fund said.

"Directors agreed that continued prudent macroeconomic policies, together with further structural efforts at enhancing economic resilience and diversifying the sources of growth will be key to sustaining favourable prospects over the medium term," the report said.

IMF directors said they supported the Malaysian government's fiscal targets for the 2003 budget and its aim of balancing the central government budget. - AFP