The economy grew 8.0 percent in the second quarter on year from 7.6 percent the previous quarter, powered by strong growth in the manufacturing and services sectors, the central bank said today.

During the first six months of the year, the country's gross domestic product (GDP) grew 7.8 percent year-on-year, governor Zeti Akhtar Aziz said.

In the second quarter, manufacturing activities expanded by 12.1 percent year-on-year, compared with a revised 12.7 percent growth in the first quarter, Zeti said.

Export and domestic oriented industries registered strong expansion of 18.3 percent and 8.0 percent respectively.

The governor said the services sector registered higher growth of 7.4 percent year-on-year against 6.2 percent in the first quarter due to the combined effects of a strong pick-up in tourism and domestic consumption.

The agriculture sector continued to expand at a steady 3.2 percent, unchanged from the preceding quarter.

Mining sector growth slowed in the second quarter to 1.1 percent from a revised 5.8 percent expansion in the first quarter due mainly to the decline in crude oil production after the temporary shutdown of several oil and gas fields and plants for maintenance, she said.

The construction sector suffered a slowdown, contracting 1.7 percent compared with growth of 0.6 percent previously because of lower civil engineering activity.

Higher disposable income

Zeti said despite the ongoing consolidation, domestic demand growth strengthened further in the second-quarter of 2004, with further expansion of private sector activities.

Growth in private consumption in the second-quarter expanded by 11.4 percent against 8.4 percent in the first-quarter, supported by higher disposable income, improved consumer confidence, low inflation and interest rates as well as stable employment conditions.

Zeti noted gross fixed capital formation continued to registered a strong growth of 3.5 percent, underpinned by stronger private investment activities as federal government expenditure continued to decline.

She said the fiscal deficit was 4.5 percent of GDP in the second-quarter while inflation remained low at 1.2 percent.

New capacity expansion in sectors experiencing strong growth, stable labour market conditions and increasing competitive pressures, contributed towards reining in price pressures in a strong growth environment, Zeti said.

She pointed out the balance of payments also reflected the more buoyant economic conditions.

The country's large trade surplus narrowed slightly to RM18.1 billion in the second-quarter from RM19.3 billion in the first quarter as imports of intermediate capital goods rose in response to strengthening investment and capacity expansion.