KUALA LUMPUR, Malaysia - Malaysia's economy is showing signs of aslow recovery, a leading think tank said Wednesday as it raised its 2009 forecast to a 3.3 percent contraction from 4.2 percent tipped earlier.

However, the Malaysian Institute of Economic Research (MIER) said Southeast Asia's third-largest economy may need a third stimulus package worth 8.0 billion ringgit (2.4 billion dollars) next year to spur the recovery process.

The MIER also upgraded its 2010 growth forecast to a 3.7 percent expansion from 2.8 percent forecast in July, in anticipation of a modest economic recovery worldwide.

"There are glimmer signs that the global downturn has stabilised somewhat, but the recovery is expected to be sluggish and uneven," the influential institute said in a report.

"Malaysia may not regain more strength until the global economy is back on track, which is going to be at a disappointingly slow pace," it added.

MIER chief Mohamed Ariff Abdul Kareem said that among the positive indicators, the contraction in Malaysia's critical exports sector has moderated, the services sector is growing and business confidence isimproving.

"The growth is however going to be very tepid, it will be a very shallowand fragile recovery," he told reporters.

Malaysia has said it expects the export-dependent economy to contract by 4.0-5.0 percent this year due to a steep decline in exports and manufacturing.

The central bank announced in August that the economy shrank 3.9 percent in the three months to June year-on-year, in an improved performance from a 6.2 percent contraction seen in the first quarter.

Mohamed Ariff said Malaysia may need another hefty stimulus package ofgenuine government spending next year "to fuel the recovery process".

Malaysia has announced two stimulus packages, the most recent in March billed as containing some 60 billion ringgit in measures to pump-prime the economy.

However the MIER said the package contained a lot of "padding".

Prime Minister Najib Razak said in August that the economy had "turned around a corner" and was on track for a recovery despite a second consecutive quarter of negative growth.