THE Malaysian economy, while not immune to global events, should hold up relatively well in 2009, thanks to strong macroeconomic fundamentals.

Economists believe Malaysia has the right policies and resources to fare better than most economies in the face of the global financial crisis that is expected to spread further this year.

The Oxford Business Group, in its annual review of the Malaysian economy released recently, said the country's favourable business climate helped it secure a major vote of confidence from the World Economic Forum (WEF) in October, ranking number 21 in the WEF's annual Global Competitiveness Report out of 134 countries.

It scored 5.04 out of seven overall, not far behind the United States, which topped the table with a 5.74 mark.

"Looking ahead to 2009, Malaysia will continue to improve its ability to control the effects of an unstable global economic situation, focusing on its ability to strengthen government-targeted sectors like tourism, pharmaceuticals, Islamic finance, food processing and medical supply manufacturing," it said.

The Malaysian Institute of Economic Research (MIER), in its latest quarterly report, has forecast Malaysia's gross domestic product (GDP) to contract to 3.4 per cent this year due to a gloomy global outlook. Growth for last year is expected to come in at 5.3 per cent.

MIER executive director Datuk Dr Mohamed Arif Abdul Kareem cautioned that growth would likely deteriorate from late 2008 as the Malaysian economy takes a hit from the knock-on effects of a flagging global economy.

He cautioned that Malaysia may experience a technical recession this year or two consecutive contractions, "probably in the second and third quarter".

"The effect will be milder this time (compared with the 1997/98 Asian financial crisis) but it's going to last longer."

MIER expects the Malaysian economy to be back on the growth trajectory in 2011. Until then, there will likely be sluggish growth "as we have to wait for others to recover as well", Arif said.

For MIER and many other economists, the Malaysian economy is one of the better ones in the region.

"The financial sector is fairly stable and we continue to record current account surpluses."

MIER also expects the ringgit to strengthen as the dollar adjusts downwards. It may hit its low of 3.6 and settle around 3.3 or 3.4. -- The New Straits Times / Asia News Network