(AFP) Malaysia's fourth quarter economic growth will be better than the previous quarter due to improved consumer sentiment ahead of three religious festivals, central bank governor Zeti Akhtar Aziz said today.

"We have some degree of optimism that the fourth quarter will be better than the third quarter," Zeti was quoted as saying by Bernama news agency.

Zeti said there was no fear about Malaysia slipping into a recession in 2001, adding the global recovery can be expected to occur in the second half of 2002.

"Being a highly open economy, Malaysia will continue to be affected by external developments.

Provide loans

"While we may not be able to directly reduce the impact of these developments on our external sector we can compensate for them by encouraging domestic activity," she said in a statement.

Zeti urged businesses not to cut back on investments to ensure they are well-positioned to benefit from an upturn when it occurs.

Bankers should not overreact to the weaker short-term environment, and should continue to provide access to financing for viable projects to support the growth process, she said.

Zeti pressed financial institutions to assist borrowers, on their own initiative, to reschedule and restructure the loans of viable borrowers.

"Finally, consumers should spend productively and contribute to sustain domestic demand," she said.

The central bank is scheduled to release Malaysia's third quarter gross domestic product (GDP) growth figures on Nov 22.

Positive growth

Last month Prime Minister Mahathir Mohamad said Malaysia's third quarter economic growth would be under one percent.

"We would have some positive growth but maybe 0.5 percent, maybe slightly more than that," Mahathir, who is also finance minister, said.

Zeti said if the economic situation worsens, Malaysia had the flexibility to adjust interest rates to spur economic activity.

"At the moment, the rates are at an appropriate level. If the environment changes, we have the flexibility to adjust it," she said.

Zeti said Malaysia's international reserves as at Oct 31, 2001, stood at RM114.8 billion, adequate to finance 4.9 months of retained imports.

The central bank said the increase in reserves due to sustained trade surplus as well as inflows of foreign direct investment.

While exports have declined since the global economic slowdown, this decline has been cushioned by a corresponding reduction in imports, resulting in a sustained trade surplus, it added.

Malaysia registered a 3.1-percent growth rate in the first quarter this year and 0.5 percent in second quarter.

The government this month revised downwards its 2001 GDP growth forecast to 1.0-2.0 percent because of the "greater-than-expected" slowdown in the world economy.