In a statement, the central bank attributed the growth to higher private and public sector spending, while expansion in external demand spurred domestic production.
"On the supply side, major economic sectors continued to record strong growth during the quarter, led by the manufacturing and services sectors," Bank Negara said.
The manufacturing sector expanded 15.9% (1Q 10: 17%), with broad-based growth across all clusters. The services sector grew strongly by 7.3% (1Q 10: 8.5%), supported mainly by the strong performance of the wholesale and retail trade; finance and insurance; and transport and storage sub-sectors.
The construction sector expanded by 4.1% during the quarter (1Q 10: 8.7%), supported mainly by the strong growth in the non-residential sub-sector. Growth in the agriculture sector moderated to 2.4% (1Q 10: 6.8%) due to lower production of industrial crops, while the mining sector registered a growth of 1.9% (1Q 10: 2.1%) supported by higher production of natural gas amid lower production of crude oil.
The headline inflation rate, as measured by the change in the Consumer Price Index (CPI), increased by 1.6% on an annual basis in the second quarter (1Q 10: 1.3%). The increase in consumer prices was attributable mainly to the rise in the prices of food and non-alcoholic beverages (2Q 10: 2.4%, 1Q 10: 1.4%).
In the external sector, the trade surplus narrowed to RM23.4 billion in the second quarter (1Q 10: RM38.9 billion) as gross imports increased faster than gross exports.
Gross exports grew by 21.7% (1Q 10: 30.7%), supported by robust demand for E&E products and sustained demand for non-E&E exports and minerals, particularly from the regional economies.
Meanwhile, gross imports expanded at a robust pace of 30.3% (1Q 10: 35.1%), driven mainly by strong growth of imports of intermediate and capital goods.
On a cash basis, gross inflows of foreign direct investment (FDI) amounted to RM4.7 billion in the second quarter (1Q 10: RM4.9 billion). After adjusting for gross outflows due to repayment of inter-company loans, net FDI recorded a larger net inflow of RM1.8 billion (1Q 10: +RM0.2 billion).
During the quarter, FDI was channelled mainly into the electrical and electronics as well as petroleum-related industries. Net direct investment abroad by Malaysian companies amounted to RM2.5 billion in the second quarter (1Q 10: -RM3.2 billion), largely for investments in the services and oil and gas sectors. Meanwhile, there were further inflows of portfolio investments of RM6.6 billion in the second quarter (1Q 10: +RM3.8 billion) due to strong foreign participation in debt securities.
The international reserves of Bank Negara Malaysia amounted to RM309.8 billion (equivalent to USD94.8 billion) as at 30 June 2010, and RM310.6 billion (equivalent to USD95 billion) as at 30 July 2010.
The reserves position is sufficient to finance 7.9 months of retained imports and is 4.3 times the short-term external debt.
"Going forward, the domestic economy is expected to remain strong, sustained by robust private sector demand," the central bank said.
While external developments may result in a moderation in the pace of growth, favourable employment conditions, sustained consumer and business sentiments, moderate inflation and an accommodative policy environment are expected to encourage domestic economic activity, while external demand would continue to be supported by regional demand, it added.
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