"Thus, we forecast a smaller contraction of -2% this year and a positive growth of 3% for next year," it said in a report today.

It said recent economic indicators — including moderating pace of decline in exports; rising loan growth and power demand; and recovery in global chip sales, higher prices of crude oil and crude palm oil — point to stronger sequential growth in domestic activity in the coming months.

"We believe that accumulated monetary policy initiatives and measures to enhance access to financing are sufficient to provide support to recovery in domestic demand. In addition, the RM25 billion government guarantee fund should help ease concerns of access to financing for SMEs," it said.

"We are also banking on the construction sector contributing to growth, as evidenced by recent award of the tunnelling package of the Pahang-Selangor Raw Water Transfer project worth RM1.3 billion."

In addition, tenders for the RM8 billion to RM10 billion Klang Valley LRT upgrade could come out as early as July, signalling an increase in the federal government's pump priming programmes, it said.

Yesterday, the World Bank cut its GDP forecast for the world economy from -1.7% to -2.9%, according to its report "Global Development Finance 2009: Charting a Global Recovery".