KUALA LUMPUR, Nov 23: The Malaysian economy contracted 1.3 per cent year-on-year in the three months to September as the manufacturing sector reeled from the global downturn, the central bank said on Friday.

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

Zeti attributed the 1.3 per cent slump, the first year-on-year contraction since the first quarter of 1999, to sharp production falls in export-oriented sectors amid the deteriorating global economy.

She said a “significantly higher base” in the same period last year also magnified the fall.

But she said a series of pro-growth policies and structural adjustments have strengthened Malaysia’s economic fundamentals, which “remain strong” even after the September 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.

She said Bank Negara’s assessment was that GDP for the full year would “remain positive” but declined to commit whether it could meet the government’s growth forecast of between one and two percent.

In our survey, some of the manufacturers even in the electronics sector have indicated that they have begun to get new orders for the fourth quarter, she said.

These are positive trends but there is a great deal of uncertainty in the global environment and therefore, it’s difficult to say how the global environment will unfold.

What we cay say is that domestic consumption ... will increase and this will provide support in promoting domestic activities.

While a contraction was widely expected in the third quarter, analysts said it surpassed market expectations of between 0.5 and 1.0 per cent.

I think we can expect another negative growth in the fourth quarter. Growth is domestic driven and it takes at least nine months before the effect kicks in, said a senior analyst with a local brokerage.

In the September quarter, the manufacturing sector fell 8.4 per cent year-on-year while agriculture declined 2.0 per cent.

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

Manufactured exports plunged 20.4 per cent, with electronics exports falling 26.5 per cent and electrical products down 16.9 per cent.

But a central bank survey showed inventory levels were generally low and any adjustment would not constrain growth, she added.

Zeti said consumption spending surged 4.7 per cent in the September quarter, reflecting an improvement in consumer confidence.

She said there was no plan to cut interest rates which were now at “appropriate level” while the ringgit peg, fixed at 3.80 to the dollar since 1998, was at fair value.

Non-performing loans, at 8.1 per cent in the September quarter, would increase in the next few months but Zeti said this was not likely to be significant.

For 2002, she added that Bank Negara forecast a period of slower growth during the first half of the year with an improved and strengthed growth in the second half.—AFP