Recently, inflation has reached 8.2% in September and 8.5% in July/August,  which was the highest level in three decades. The government has slashed its economic growth forecast to 3.5% from 5.4% for 2009 and promised a $1.9 billion cash injection into the economy next year.

Growth for the manufacturing sector is expected to drop to .8% from its original forecast of 4.3% for next year. The government plans to remove import duties for manufacturing and ease licensing requirements to help businesses.

The Deputy Minister of Finance has a more optimistic take on the current economic situation in Malaysia. He expects no recession but a slowly expanding economy with a growth rate of less than 5% for 2008 and 3.5% in 2009, writes Bernama.

Optimistic news may sway the fickle investor but the iShares MSCI Malaysia Index Fund (EWM) is currently down 43.3% year-to-date, so the optimism doesn’t seem to be warranted at the moment. The fund is 7.3% below its 50-day moving average, but sharply off the 200-day by 25.2%.