Malaysia stands on the brink of recession as falling demand hits exports and manufacturing with growth expected to reach just 0.5 percent for the year, an independent think tank said today.

"We forecast the economic growth for the first half of the year will be negative which will put us in a technical recession but show positive figures in the second half," Mohamed Ariff Abdul Kareem, head of the Malaysian Institute of Economic Research told AFP .

malaysia stock exchange market klse 141008 05 "Overall, it will be 0.5 percent growth for this year in the best-case scenario. The worst-case scenario is there is a 50 percent chance of a full-blown recession this year," he warned.

In January, the institute slashed its gross domestic product growth forecast to 1.3 percent from an earlier 3.4 percent prediction while the government is sticking to its 3.5 percent growth for 2009.

Mohamed Ariff said the fiscal deficit could surge to eight percent of GDP if a second economic stimulus package to be unveiled by the government on March 10 was more than RM30 billion.

"It could be between six and eight percent depending on the size of the stimulus package," he said.

Malaysia last year unveiled a RM7 billion stimulus package to help boost the economy and keep the country out of recession but Deputy Premier Najib Abdul Razak said the second package would be bigger and more comprehensive.

The government has already widened its deficit forecast for 2009 to 4.8 percent, from the 3.6 percent predicted in August, due to the additional government spending.

Official data released last week showed Malaysia's economic growth slowed to just 0.1 percent in the fourth quarter of 2008, hit by falling exports and manufacturing as demand continues to evaporate.

Selangor's stimulus package

In a related development, the Selangor government said that it will be in the forefront to make efforts to help boost the country's economy, especially in view of MIER's gloomy forecast.

The Menteri Besar's office said that the exco meeting today identified five major areas to create a catalyst for economic development in the state.

The main area of concern is the rehabilitation and cleaning up of the Klang river which include the real estate development along the river land reserves.

The state also wants to expand the transportation system for the state, including the expansion of the LRT system.

Also in consideration is the upgrading and replacing the water assets and the renewal or urban activities, with special focus on redevelopment of slum areas.

Finally the state also wants to revive the abandoned housing projects.

The MB's office said that these five major areas are expected to create investment of above RM50 billion and create more than 150,000 job opportunities.

"The state believes that this initiative will also provide ample opportunities for the small and medium industries (SMI)".

The MB's office also said that the state would expand the broadband and wireless system for the state and enhance development in Pulau Indah.