Malaysia's economy expanded 5.1 percent in the third quarter from a year earlier and is expected to exceed the full year forecast of 4.5 percent growth, the central bank announced today.

Gross domestic product (GDP) growth in the three months to September was driven by expansion in domestic demand and expansion in key sectors including tourism and manufacturing, it said in a statement.

Central bank governor Zeti Akhtar Aziz said the Malaysian economy was likely to grow faster than the 4.5 percent forecast for the full year.

"It is very likely that the overall growth will be higher than 4.5 percent," she told reporters at a briefing to release the data.

GDP growth for the second quarter was revised to 4.5 percent year-on-year from 4.4 percent previously and expanded by 4.2 percent in third quarter compared with the second quarter.

The central bank said the third quarter GDP growth was broad based, both in terms of expenditure and production components.

"The Malaysian economy grew by 5.1 percent mainly by the strengthening of aggregate domestic demand, a positive impact of the stimulus package introduced by the government, buoyant commodity prices and strong recovery in the services sector," Zeti said.

Low interest regime

The strong private sector response to the proactive government measures and a low interest rate environment had contributed to the strengthening of the growth momentum, she said.

Private consumption grew by 5.4 percent in the third quarter, while growth in gross fixed capital formation accelerated to 3.2 percent.

The central bank said the tourism sector had recovered completely following the SARS outbreak.

"Recovery in tourism, together with stronger consumer confidence, resulted in the sector recovering completely from SARS and the geopolitical uncertainties in early 2003," it said.

All sectors of the economy expanded markedly, except mining.

The manufacturing sector grew 8.5 percent year-on-year in the third quarter, compared with 7.3 percent a year earlier, due mainly to buoyant domestic consumption and higher production of exports, while the services sector expanded 4.2 percent from 3.4 percent previously.

The agriculture sector grew 6.2 percent against 8.3 percent while the construction sector moderated to 2.4 percent from 2.6 percent growth previously.

The mining sector contracted by 0.7 percent compared with a growth of 7.9 percent in the third quarter last year.

Exchange rate peg to stay

The central bank said it would continue to maintain its current accommodative monetary policy and the exchange rate, which is currently fixed at 3.80 ringgit to the US dollar.

"Recent economic and financial indicators provided firmer evidence that the global economic recovery is gaining momentum," it said.

Under these circumstances, the current accommodative monetary policy would be maintained to support and sustain the growth momentum, it said.

"On the exchange rate front, underlying fundamentals continue to support the ringgit, which remains at a fair value," the central bank said, adding that the peg continues to facilitate international trade and investments as well as support economic expansion. - AFP