The country's higher-than-expected second quarter economic growth of 3.8 percent year-on-year was hailed by analysts Thursday as a positive indication of the country's long term recovery.

"The GDP result was slightly above what we forecasted at about 3.3 percent, and is definitely a positive sign of our country's strong recovery," said Anthony Daas, head of research of a local securities firm.

"I believe the growth momentum can be sustained as it is quite broad-based, pushed by demand on the domestic side and semiconductor exports," Daas told AFP .

The central bank's figures released Wednesday also showed gross domestic product (GDP) grew a robust 3.9 percent compared to the first quarter.

Mohamed Ariff, executive director of the Malaysian Institute of Economic Research, said the growth rate was likely to improve towards the second half of the year, fuelled by a recovery in exports and the manufacturing sector.

"In the long term it may be difficult to tell, because of our strong reliance on the United States' economy, but for this year, the situation seems fairly clear to say we are well on our way to a strong recovery," he said, adding that he expected economic growth of 5.0-6.0 percent for the second half of the year.

Under performance

However, other analysts were more cautious, saying the second quarter results were still below the performance of other countries in the region.

"Countries in the rest of Asia, which have released their Q2 (second quarter) results, had all greatly out-performed market expectations, but Malaysia's figures were only slightly above previous predictions," said Nizam Idris, regional economist with Singapore-based IDEAglobal.

"The main driving forces behind the Q2 results were domestic oriented industries, but the export oriented industry was still weak compared to strong global demand," he said.

Nizam warned the positive performance could not be be sustained long-term unless the government removed its four year-old currency peg of RM3.80 to the dollar.

The ringgit was fixed to the greenback as part of capital controls imposed in 1998 when the economy plunged into a recession. All the curbs apart from the peg have since been lifted.

"With the high domestic demand and improved export industry, Malaysia is able to outperform the region for the second half of the year.

"But there is a misallocation of resources and also, the ringgit peg cannot be a permanent solution because it is just a form of market distortion," Nizam said.

Positive growth

Bank Negara governor Zeti Akhtar Aziz said that for the first time since the first quarter of 2001, exports recorded positive annual growth of 5.3 percent. They were boosted by stronger growth in electronics exports and improved terms of trade arising from higher prices for palm oil, rubber, cocoa and timber.

Economic growth was further strengthened by a recovery in the manufacturing sector and year-on-year growth of 4.5 percent in services.

Manufacturing rebounded in the second quarter with growth of 5.6 percent compared with a decline of 2.3 percent in the first quarter. The rise was the first since the first three months of last year. AFP