Prime Minister Mahathir Mohamad Monday predicted Malaysia's economy will enjoy stable growth in 2002 despite the woes facing its two key economic partners -- the United States and Japan.

"The economy will continue to strengthen even though the world economy is becoming worse due to the dampening of the US and the Japanese economy," Mahathir was quoted as saying by Bernama news agency in his annual New Year message.

Falling foreign investments which in the past helped to fuel growth would be replaced by public spending to ensure growth, he said.

Malaysia has introduced two fiscal measures in a three billion ringgit (789 million dollars) package in March and a 4.3 billion ringgit package in September to boost the ailing economy.

Mahathir, who is also the finance minister, said Malaysia need not seek foreign borrowing since domestic funds were sufficient.

"The country's financial position

is strong. But we have to remain cautious in our spending because we do not know when the world economy would recover," he said..

Mahathir urged Malaysians not to travel abroad to prevent an outflow of its currency, saying travel within the country would boost domestic consumption.

Manufacturers should also diversify from the traditional exports of electrical and electronic products to ensure a greater spread, he said.