Malaysia's economic growth eased to 4.1 percent in the three months to June after expanding 5.8 percent in the first quarter, the central bank said today.

However, the central Bank Negara said the outlook for the second half of 2005 remained favourable despite surging oil prices.

Malaysia's economy grew 4.9 percent in the first half of 2005 and the full-year gross domestic product result should come in at 5.0-6.0 percent as targeted, it said.

"Private sector activity continued to be the main driver of growth," central bank governor Zeti Akhtar Aziz said.

Zeti said domestic demand rose 5.6 percent, underpinned by strong private consumption spending and continued increase in private investment activity.

On the supply side, the services sector continued to provide the main impetus to growth of 5.4 percent, she said.

Zeti said slower growth was experienced in the manufacturing sector, with 3.2 percent expansion, while the output in the mining sector declined 1.6 percent due to the shutdown of oil fields and plants for maintenance purposes.

Growth in the construction sector continued to decline at a moderate rate of 2.0 percent, she said, adding "prospects for the Malaysian economy in the second-half remain favourable."

Inflation could be higher

The central bank chief warned that full-year inflation could be higher than the projected 2.8 percent if oil prices increased more than expected.

Zeti also said that despite higher petroleum-related expenditures, improved revenue collection contained the fiscal deficit at RM2.7 billion or 2.3 percent of GDP in the second quarter.

Malaysia's external position remained strong with the trade balance recording a large surplus of RM22.9 billion, she said.

Gross exports grew at 10.8 percent, supported by robust growth in minerals and reinforced by expansion in exports of manufactured goods and agricultural commodities.

Zeti also said that gross inflows of foreign direct investments increased to RM8.7 billion in the second quarter from five billion ringgit in the first, focused mainly on the oil and gas services sector.

Portfolio investment recorded a higher net inflow of RM4.5 billion against RM2.8 billion in the preceding quarter, mainly reflecting sustained foreign interest particularly in debt securities, she said.