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The Malaysian government released a statement last week indicating that the country’s economy grew by less than 1% during the fourth quarter of 2008. The government expects growth in 2009 to be only around 3.5%, just over one percentage point below 2008 levels. This will be the lowest level in seven years and has been brought about by a significant drop in exports. Estimates show that resulting layoffs in the manufacturing industry have increased by nearly 90% over the past year.

In an effort to battle the declining economic conditions and encourage companies to retain their workers, Malaysia’s Human Resources Ministry announced plans last month to reduce certain mandatory social security fund contributions for employers. Domestic and foreign companies in Malaysia currently pay a collective total of more than RM400 million (about US$110 million) each year into a Human Resources Development Fund (HRDF), which is used for worker training. In the past, all employers were required to contribute 1% of employee salary as a payroll tax into this fund.

Under the new regulations, effective in February 2009, employer contributions to the HRDF have been eliminated completely in the textile and electronics industries and reduced to 0.5% in all other industries. The Federation of Malaysian Manufacturers has called for the reductions to remain permanent, but the Human Resources Ministry says that the policy is an emergency measure that will be reviewed and adjusted as necessary in July 2009.