Malaysia Q2 GDP up 5.7 pct vs year earlier on private, public spending

Aug 29, 2007 - Malaysia's gross domestic product grew 5.7 percent on an annualized basis in the second quarter, up from a revised 5.5 percent expansion in the first quarter, boosted by private and public sector spending, central bank governor Zeti Akhtar Aziz said Wednesday.

First-quarter GDP was originally estimated at 5.3 percent.

Economists polled by Thomson Financial were forecasting second-quarter GDP growth of 5.2-5.4 percent.

A strong performance in the services sector and increased activity in the mining and construction sectors were the main drivers of second-quarter growth, said Zeti.

"We are on track to achieve a strong performance of our domestic economy in terms of consumption and investment activities," she told reporters.

The inflow of foreign direct investment has also exceeded expectations, she said.

Malaysian economic growth will still depend on how the US economy performs for the rest of the year but at this stage, the central bank is keeping its full-year forecast for growth of 6 percent, she said.

"Even if external factors have an impact, (full-year GDP growth) will be close to that forecast," Zeti said.

For the first half, the economy grew an annualized 5.6 percent against a six percent rise last year.

The central bank said the services sector, which grew by 9.2 percent in the quarter, remains the key growth driver as it continued to benefit from increased finance and business activity as well as favorable stock market performance.

The mining sector swung from a 0.6 percent contraction in the first quarter to a 7.7 percent growth in the second, supported by higher output of both crude oil and natural gas.

The construction sector grew by another 4.8 percent in the second quarter from a rise of 4 percent in the preceding quarter as new projects under the Ninth Malaysia Plan commenced work.

The Ninth Malaysia Plan is the government's 200 billion-ringgit, five-year development blueprint which runs through 2010.

Despite weakness in the electronics and electrical industry, the manufacturing sector still managed to grow by 1.5 percent, though at a slower pace than the 2 percent growth in the first quarter.

The agriculture sector contracted by 0.9 percent after rising 2.2 percent in the previous quarter mainly due to lower production of crude palm oil as a result of unfavorable weather conditions.

Zeti said she does not expect a change in interest rates in Malaysia as current domestic interest rates are already near historical lows and loan growth has been significant in recent months.

"Therefore, we see interest rates at this stage as still very supportive to economic growth," Zeti said.

She said the unwinding of yen carry-trades has also had little impact to Malaysia given the relatively low lending rates here.

(1 US dollar = 3.50 ringgit)