Malaysia's central bank warned Wednesday the economy may contract in the first quarter but indicated there would be no further interest rates cuts in the near term.
Last month, Bank Negara Malaysia cut its key interest rate for the third time since November to boost lending amid concerns over a possible recession this year.
In early March the government cut its economic growth forecast of 3.5 percent this year. It now expects the economy will grow 1 percent in the best-case scenario and shrink 1 percent in the worst-case scenario _ which would be Malaysia's first recession in a decade.
Bank Negara Gov. Zeti Akhtar Aziz said the new forecast factored in a further deterioration of the global economy and also expectations that world financial markets would stabilize in the second half.
She said Malaysia's economy is likely to shrink sharply in the first quarter since exports plunged nearly 28 percent in January, their largest drop in 28 years.
"We do expect the first quarter of the year to see quite significant economic contraction ... but by the second half of the year, we should see improvement," she told reporters.
Zeti said 67 billion ringgit ($19 billion) in stimulus measures recently unveiled by the government could boost economic growth this year by between 1 percent and 1.5 percent.
But the central bank predicted a downturn in manufacturing and commodity shipments would cause exports to plunge 25 percent this year, compared to growth of nearly 10 percent last year.
Zeti said the central bank has no immediate plans to further cut interest rates, which are already at historic lows, but will instead focus on improving access to financing.
Bank Negara has set up a panel to help corporations restructure their debts and will review its economic growth target if the current crisis drags into the second half, she added.
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