BNM: Manufacturing to contract 8%

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KUALA LUMPUR: Bank Negara projects the economy to record -1% to 1% growth this year, in line with the earlier government forecast, as manufacturing sector contracts 8%. This year would be challenging for most sectors, particularly industries directly exposed to external demand, said the Bank Negara 2008 Annual Report issued on March 25. The contraction in global demand was expected to continue to impact the manufacturing sector as well as trade- and tourism-related industries in the services sector, the report said. The spillover of weaknesses in external demand and the generally cautious economic environment would lead to moderating private sector activities in domestic dependent sectors, in line with the slower pace of growth in domestic demand, it said. “Nonetheless, domestic-oriented sectors will be partially supported by expansionary fiscal and accommodative monetary policies,” it said, noting that the construction and services sectors would register growth in 2009. The central bank projected the manufacturing sector to decline sharply by 8% in 2009 from a growth of 1.3% last year, in particular the electrical and electronics industry that is expected to be the worst affected by the sharp deterioration in global conditions affecting the final demand for its products. The agriculture sector is forecast to decline 2% mainly due to lower production of both palm oil and rubber. The expected lower prices of both commodities reduced the incentive for marginal producers to maintain the output growth trend seen in recent years. The mining sector was forecast to fall 0.4% as a 2.2% decline in crude oil output to 675,000 barrels per day, it said. Bank Negara said the construction sector was expected to benefit from higher government spending and register stronger growth in 2009, it said. The higher spending would push the sector to grow by 3% in 2009, underpinned by the implementation of projects under the two economic stimulus packages. However, the residential sub-sector is projected to moderate as developers reduce new housing development launches due to the weakening consumer sentiment. Bank Negara said while growth in the services sector was expected to moderate to 4.5% in 2009, the slower but continued growth in domestic demand, together with supportive fiscal and monetary policies would provide support against the weaker performance of trade- and tourism-related activities in 2009. “As a whole, the services sector will remain the key growth sector of the economy in 2009, contributing 2.5 percentage points to the overall GDP growth,” it said. The central bank said the finance and insurance sub-sector would continue to grow in 2009, albeit at a slower pace, and both will moderate in line with the slower private sector activity. The growth in the sub-sectors that are largely dependent on domestic consumption, such as wholesale and retail trade, and communications sub-sectors, will be sustained at a more moderate pace, it said. Bank Negara said the wholesale and retail trade, and accommodation and restaurant sub-sectors were projected to grow at lower rates compared to 2008. The communication sub-sector was expected to continue to register favourable growth in 2009, supported by sustained demand for mobile communication and broadband services. Growth in the transport and storage sub-sector was forecast to slow due to the anticipated lower trade and manufacturing activity; while growth in the utilities sub-sector will be affected by the moderation in demand for electricity, particularly from the industrial sector.