(AFP) Malaysia's economy contracted 1.3 percent year-on-year in the three months to September as its manufacturing sector reeled from the global downturn, Bank Negara said today.

Gross domestic product (GDP) however, was up 0.8 percent from the previous quarter and remained positive at 0.7 percent for the first nine months of the year, said Bank Negara governor Zeti Akhtar Aziz.

Zeti said a series of pro-growth policies and structural adjustments have strengthened Malaysia's economic fundamentals, which "remain strong" even after the Sept 11 terror attacks on the United States.

"Right now, the indication is that for the fourth quarter, we expect to have a better growth than in the third quarter," she told a press conference.

On growth for the full year, she added: "Our assessment is that it will remain positive."

In the third quarter, the manufacturing sector fell 8.4 percent year-on-year while agriculture declined 2.0 percent.

The services sector rose 4.4 percent, construction was up 2.6 percent and mining 2.1 percent but this had only partially offset a downturn in the export-oriented industries, Zeti said.