Malaysia's economy is likely to decelerate to around five per cent in third quarter 2010 from 8.9 per cent in the second quarter on expectation of a continued slowdown in demand for manufactured goods globally, according to Kenanga Research.

The downtrend is also expected to continue in the fourth quarter on the back lower exports revenue, it said in a research note today.

'This is further exacerbated by the strengthening of the ringgit, courtesy of the recent quantitative easing measures implemented by the US Federal Reserve, which eventually makes Malaysia's exports less competitive,' the research house said.

However, Kenanga Research said with the initial Economic Transformation Programme (ETP) to take off within the next few months, increase in domestic demand may partially mitigate the impact of a decline in external demand.

'China, a major trade partner, is also expected to support Malaysia''s exporters as its economics growth remains robust even in the light of gloomy economic outlook,' it said.

It added that for now it was maintaining full-year gross domestic product (GDP) forecast of 6.8 per cent while projecting a growth of 5.5 per cent in 2011.

On the Industrial Production Index (IPI), Kenanga Research expects the slowdown in manufacturing output to continue to decline on the back of diminishing external demand.

'The fact that Malaysia's manufacturing exports consist of electronics and electrical goods, the anticipated slowdown in global consumer demand will continue to perpetuate the downward trend in the remaining part of the year and into first half 2011,' it said. -- BERNAMA