(AFP) Malaysia's manufacturing sales registered a sharp drop of eight percent in May from a year earlier, according to figures released today by the Statistics Department.

The sector recorded sales of RM25.4 billion, down 1.6 percent from the previous month. Nizam Idris, regional economist with Singapore-based IDEAglobal.com, said the big drop was mostly due to falling demand for exports amid the gloabl slowdown but it also reflected slow domestic demand.

"The United States, Japan and Singapore are three of the five major export destinations for Malaysia and their slowdown shows that a great part of the decrease is caused by foreign components," he said.

Nizam said consumer demand was also very weak in Malaysia and the consumer confidence index showed a constant decline.

Trickle down effect

"Malaysia's situation depends on foreign demand but the government can help locally by boosting consumer demand by cutting interest rates," he said.

Nizam added that Singapore's slowdown would inevitably trickle down to Malaysia.

"As Malaysia's nearest neighbour and key trading partner, the effect of Singapore's economic slowdown on Malaysia is unavoidable," he said, adding that the republic's economy was only expected to recover by the first quarter of 2002.

Eddie Lee, a Singapore-based economist with Vickers Ballas, said Malaysia's production numbers for the second quarter also showed a sharp decline.

"By comparing the two numbers, this shows that contraction in the Malaysian economy, like most other Asian economies, has accelerated.

"The Malaysian government must lower interest rates to cushion this slowdown," he said.