Malaysia's export-driven economy will shrink by 2.2 percent this year, an independent think tank said today amid gloomy business and consumer confidence.

"If exports shrink severely, the downturn could be more harmful," the Malaysian Institute of Economic Research (MIER) said in a statement.

malaysia stock exchange market klse 141008 08"In the light of the deep declines in macro indicators, the gloomy business and consumer confidence, and the dismal sectoral indices, we are obliged to revise Malaysia's growth forecast for 2009 downwards to minus 2.2 percent from 1.3 percent (growth) earlier," it added.

MIER said Malaysia's growth would slide into a technical recession - defined as two consecutive quarters of negative growth - in the first half of 2009, as it suffers the knock-on effects of a flagging global economy.

'Banks becoming more cautious'

Official data shows Malaysia's economic growth slowed to just 0.1 percent in the fourth quarter of 2008, hit by falling exports and manufacturing.

"The weak external sector will impede a faster recovery, and the lower commodity prices are not helping either. Banks are becoming more cautious, limiting the flow of funds to firms," it said.

MIER also downgraded its 2010 growth forecast to 3.3 percent, from 3.8 percent previously, in view of the anticipated gradual recovery in the global economy.

Meanwhile, Bank Negara governor Zeti Akhtar Aziz said the Malaysian economy could experience flat growth this year.

"In the current environment, our projection is more or less a flat growth because of the contractions of the external environment and it is being offset by domestic demand," she was quoted as saying by the official Bernama news agency.

Malaysia, Southeast Asia's third-biggest economy, last month unveiled a stimulus package worth RM60 billion but warned that the economy could still shrink by 1.0 percent this year despite the massive spending.