KUALA LUMPUR (Bloomberg) -- Malaysia’s economy, which probably fell into a recession in the first half of 2009, is showing signs of recovery as declines in exports and manufacturing ease, Trade Minister Mustapa Mohamed said.

The economy may return to sustained growth after picking up in the fourth quarter, Mustapa said in an interview in Kuala Lumpur on Tuesday. Gross domestic product shrank 6.2 percent in the first quarter, and economists surveyed by Bloomberg predict a 5.1 percent contraction in the three months ended June.
“It appears to us that things are getting better,” Mustapa said. “We hope the economic recovery in the fourth quarter of 2009 will be sustained, although growth will be nowhere near the good old days.”
The central bank kept its benchmark interest rate unchanged at 2 percent for a fourth straight meeting today, saying the economy is “stabilizing” and will improve in the second half of 2009. Malaysia’s industrial production fell by the least in seven months in June, while exports had the smallest decline in three.
“Certainly the slowdown has decelerated” in trade, even as investments remain weak, Mustapa said. The government’s stimulus measures are also helping industries such as construction, he said.
China may overtake the U.S. and Singapore as Malaysia’s largest trading partner by 2015, Mustapa said.
Manufacturing investment
Malaysia attracted about $3 billion in approved manufacturing investments in the first half of 2009, compared with $13.3 billion for all of 2008, Mustapa said. The total this year will probably be about half of last year’s level and investment may not pick up before 2010, he said.
Prime Minister Najib Razak is easing investment rules to attract funds as he seeks to revive an economy forecast by the government to shrink as much as 5 percent in 2009.
Overseas companies investing in Malaysia and locally listed businesses will no longer need to set aside 30 percent of their equity to so-called Bumiputera investors comprising the ethnic Malay majority and other indigenous people, Najib said in June. The government also raised foreign ownership thresholds in the fund management industry and at local stockbrokers.
“One hindrance in the past has been the equity conditions,” Mustapa said. “With that hindrance removed, sentiment has certainly improved, and we hope by year-end there will be some solid applications. We foresee some pick-up in investments in services in the fourth quarter.”
The nation still faces competition for investments from the rest of the region even after it liberalized some services industries, including banking and insurance, Mustapa said.
“We hope things will get better in 2010, but having said that, the environment out there is becoming very competitive,” the minister said. “Besides political stability and physical infrastructure, we’ve got to focus on quality of life” offered to investors as well as reduce the cost of doing business.
Photo: Malaysian economy is showing signs of recovery as declines in exports and manufacturing ease, Trade Minister Mustapa Mohamed says.