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08/21 02:58

Malaysia Layoffs by Acer a Sign GDP Probably Shrank (Update2)

By David Yong

Kuala Lumpur, Aug. 21 (Bloomberg) -- Acer Inc. trimmed about a third of its 2,300 Malaysian workforce in June after orders for personal computers from the U.S. and Europe shrank -- another sign that Malaysia's economy is on the skids.

It was the Taiwan company's first job cut in Malaysia since it started making monitors and CD-ROM drives here 11 years ago, said human resources manager C.K. Fong. ``Sales have fallen 30 percent to 40 percent because demand is not there,'' Fong said.

Job cuts by Acer and other big employers are part of a slump that will shave 0.2 percent from gross domestic product in the second quarter compared with a year earlier, according to the median of 19 forecasts in a Bloomberg News survey. The central bank will release the figure after 5 p.m. local time Thursday.

The second-quarter contraction comes after growth slowed to 3.2 percent in the first quarter, half the rate of the previous three months. The slump is likely to last until the U.S. and Japanese economies revive, stimulating demand for Malaysia's semiconductors and other electronics, which make up 57 percent of exports.

``Exports and industrial production are still falling way into the third quarter,'' said Zulkifli Hamzah, an economist at Mayban Securities.

``There are still no sign of recovery, so it will get worse before it gets better.''

Malaysia's troubles mirror the slump in other Asian countries that depend on electronics exports to power their economies. Singapore's shrank at an annual rate of more than 10 percent in the first two quarters. Taiwan said Friday its economy shrank 2.4 percent in the second quarter from a year earlier, prompting its central bank to cut rates for the eighth time since December.

More Spending

Malaysia's central bank may be forced to do the same, economists say, by lowering its key intervention rate, which has been unchanged at 5.5 percent for two years. Still, with weak demand for loans, a rate cut may not help much. Bank lending grew 5.9 percent in June from a year earlier, slower than the government's target of 8 percent growth.

The government announced in March that it would spend an extra $790 million on schools and other public works, and since then it has revived a $2.4 billion dam project. It may have to spend more to fight unemployment, which rose to a two-year peak of 4 percent in the first quarter.

``The government may need to step up fiscal stimulus efforts because the conditions have worsened since March,'' said Wong Chee Seng, an economist at DBS Bank Ltd.

Employers such as Motorola Inc. and Malaysian chipmaker Unisem Bhd. laid off 20,000 workers in the first six months of the year. That number could rise to 90,000 by year-end, the Malaysian Trade Union Congress estimates.

Red Ink

Malaysia's exports fell 8.7 percent in the second quarter from a year earlier. Shipments of electronic and electrical goods dropped 13 percent to 46.2 billion ringgit ($12.2 billion). As companies laid off workers and turned off machines, industrial production fell 5.2 percent in the first half.

Corporate profits have nosedived. Unisem Bhd., Malaysia's second-largest publicly traded chipmaker, lost 7.4 million ringgit in the second quarter, compared with a profit of 37 million ringgit a year earlier.

Share prices have followed profits lower, reducing the wealth of consumers and curbing demand. The benchmark Kuala Lumpur Composite Index fell 8.4 percent during the second quarter.

Manufacturing, which accounts for one-third of GDP, probably contracted in the second quarter after growing 3.7 percent in the first quarter, economists said.

Farming, which softened the slowdown in the first quarter, may not have helped in the second. Growth of crude palm oil production slowed to 17 percent from 27 percent in the first quarter, and rubber production fell 22 percent, twice the decline in the first quarter.

The central bank may revise its economic growth forecast of between 5 percent and 6 percent for 2001. Economists polled by Bloomberg News expect growth to slow to 0.8 percent this year from last year's 8.3 percent.

The following table shows forecasts for year-on-year growth for the second quarter and for all of 2001. All figures are percentages.

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*T 2Q 2001 2001
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Median -0.2 0.8
Average -0.1 0.8
High 2.1 2.0
Low -2.8 -0.8
Forecasts 19 19
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