(AFP) - When the twin towers of the World Trade Center in New York were levelled in a terrorist attack last month, the effects were felt as far away as in Penang, Malaysia's silicon island.

Already struggling with a slump in demand for electronics, the Sept 11 attacks also struck the state's second key industry, tourism.

"The US attacks is a further blow to the electronics industry and it has affected tourism as tourists fear air travel," Toh Kin Woon, Penang state senior economic policymaker told AFP.

Over the last decade, Penang had enjoyed an economic growth of almost 8.2 percent. But Toh said growth had now been slashed to a mere one to two percent for 2001.

Ramanathan Nachiappan, a businessman with range of interests from hotel to construction, said the terrorist attacks had also affected consumer confidence at home.

"After the attack, business has been very slow. Consumers are scared. They are not spending," he told AFP.

Consumers opting to save

Ramanathan, who is the president of the Malaysian Indian Chamber Penang said members had complained about a lack of sales over the past few weeks.

Consumers, concerned about job security as more electronic factories closed down, were opting to save their money, he said.

"Compounded with the possibility of a war, a global recession and the rising risk of losing a job, consumers are keeping their money at home," he said.

Penang is home to hundreds of electronic companies, including Intel, Dell, Acer, Sony and Bosh.

In July, chief minister Dr Koh Tsu Koon said that from January to mid-May, a total of 4,283 workers had been retrenched by 42 companies amid falling investments.

There are two free-trade zones and six industrial parks in Penang. They provide a total of 91,000 jobs, of which 75,000 are from the information technology sector.

Toh said 46 percent of the state's growth was dependent on manufacturing output and 60 percent of exports went to the United States.

"Some of the small factories are either closing down or downsizing. They are moving to China and Thailand where production cost is low," he said.

Toh said that with the terrorist attacks, the state was forced to push back recovery in the manufacturing sector to late 2002 instead of an earlier projection of mid-2002.

The state had hoped that the service sector, which had performed "well in the past two years" would fuel and sustain growth, to counteract the drop-off in the electronics industry he said.

Low arrivals in tourism

But the tourism industry was now suffering from low arrivals.

Evonne Tan, duty manager with the 540-room Rasa Sayang beach hotel, lamented that occupancy rate had dipped to a mere 40 percent from the normal 70 percent.

"The twin factors - fear of travel and closing of manufacturing companies - is contributing to the dismal performance," she told AFP.

Evonne said the hotel had slashed rates by 50 percent to fill up the rooms. "We have no new business for November yet."

Tourist arrivals last year to Penang were 3.8 million people with 60 percent foreigners - mainly from the United Kingdom and Australia and the remainder local and other Asian travellers.

Toh said: "The state's two major income earners are facing problems. We hope it will blow over soon."