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

‘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.

‘Overall, it will be 0.5 per cent growth for this year in the best-case scenario. The worst-case scenario is there is a 50 per cent chance of a full-blown recession this year,’ he warned.

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

Mohamed Ariff said the fiscal deficit could surge to eight per cent of GDP if a second economic stimulus package to be unveiled by the government on March 10 was more than 30 billion ringgit (S$12.5 billion).

‘It could be between six and eight per cent depending on the size of the stimulus package,’ he said.

Malaysia last year unveiled a US$2.0 billion (S$3.1 billion) stimulus package to help boost the economy and keep the country out of recession but Deputy Premier Najib Razak said the second package would be bigger and more comprehensive.

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

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