Bank Negara Malaysia was upbeat today about the country's growth prospects this year, suggesting the economy had shrugged off the outbreak of Sars and the Iraq war.

Gross domestic product (GDP) expanded 4.4 percent in the second quarter and was on track for stronger growth, Bank Negara said in its quarterly report. The government's target is 4.5 percent for the year.

The economy had shown underlying strength despite geopolitical uncertainty and the outbreak of Sars, the deadly pneumonia-like Severe Acute Respiratory Syndrome which wreaked havoc in the region, the bank said.

The 4.4 percent growth was down slightly from 4.6 percent in the first quarter, with Sars blamed for a drop in services sector growth from 4.5 percent in the first quarter to 2.8 percent.

Positive factors

But growth was "markedly stronger" in all other sectors, with manufacturing up by 6.5 percent, agriculture by 10.4 percent and mining by 10.5 percent.

"Forward looking economic and monetary indicators on both the external and domestic fronts have now turned more positive. Many of the negative factors constraining growth in the first half-year have largely dissipated," the bank said.

"Growth in the Malaysian economy is expected to be more favourable in the second half of the year.

"While underlying conditions favour an improved outlook, the low interest rate environment will remain to ensure that the recovery is firmly entrenched."

The bank said that on the domestic front, consumer and business confidence was improving.

Higher reserves

For exports, the regional recovery in the travel and retail sectors, underlying strength of consumption and improved prospects of the electronics cycle, lent support to higher demand.

"The underlying fundamentals of the Malaysian economy continue to remain strong with low inflation and stable labour market conditions.

"The external position remains robust with international reserves increasing to RM38.6 billion as at mid-August 2003, which is adequate to finance six months of retained imports and is 4.3 times the short term external debt," the bank said. - AFP