KUALA LUMPUR - AN INFLUENTIAL Malaysian think-tank on Thursday slashed its 2009 economic growth forecast to 1.3 per cent and called for a second economic stimulus package to stave off recession.

Malaysian Institute of Economic Research (MIER) head Mohamed Arif Abdul Kareem told state news agency Bernama that the cut was due to declines in economic indicators and a drop in business and consumer confidence.

It had previously forecast 3.4 per cent GDP growth for the year.

He said that if the global economy bottoms out as projected by the World Bank, with global growth recovering to 3.9 per cent in 2010, Malaysia's economic performance could rise to 3.8 per cent next year.

Mr Mohamed Arif said there was a '50 per cent chance' of a technical recession in the first two quarters but expected positive growth in the second half of the year that could offset the first half, Bernama reported.

However, he urged the government to implement a second stimulus package of 7.0-10.0 billion ringgit (S$2.84-4.2 billion dollars) to stave off the threat of a real recession.

'By having the additional package, we are still looking at one to two percent growth this year,' he told the agency.

'When the economy slips by one percent, there will be lot of job losses.

But the rate would be much higher in the absence of the additional stimulus package,' he added.

Last November, the government announced a 7.0 billion ringgit stimulus programme to boost the economy, focusing on 'high-impact' projects including roads, schools and low-cost housing.

MIER also reduced its projected economic growth for 2008 from 5.5 per cent to 5.1 per cent.

Mr Mohamad Arif said the social impact of the downturn would be more severe than the 1997-98 Asian financial crisis, as it affected more sectors including the services and plantation industries.

'It appears to be worse as only the manufacturing sector was previously affected,' he added.

The think-tank also predicted that Malaysia's central bank would slash the overnight policy rate by 50 basis points this year following a reduction of 25 basis points to 3.25 per cent in November 2008. -- AFP