Malaysia s economy grew at a better-than-expected 5.0 percent on year in the third quarter fuelled by robust domestic demand and an improvement in exports, the central bank said Friday. The economy expanded 4.4 percent in the second quarter.

The services and construction sectors were the key drivers on the supply side while private and public consumption led the demand side, the central bank said.

"The gradual recovery in the external sector will support growth," Zeti Akhtar Aziz, central bank governor was quoted as saying by Dow Jones newswire.

"Domestic demand from the private sector will remain supportive of economic activity amid the continued consolidation of the public sector," she added.

Domestic demand in the third largest Southeast Asian economy grew 8.3 percent on year in the July-September period.

Malaysia s central bank in August said the economy was expected to expand 4.5-5.0 percent this year, slowing from 5.6 percent growth in 2012.

Private-sector consumption expanded 8.2 percent supported by stable employment and sustained wage growth during the third quarter.

Public-sector consumption grew 7.8 percent on year and fell on quarter from 11.8 percent amid lower government spending on supplies and services.

Private investment, however, grew 15.2 percent on year backed by capital spending. Yeah Kim Leng, chief economist at RAM Holdings told AFP the data was a pleasant surprise as they were expecting growth of only 4.8 percent.
"It is marginally above expectation. There was a pick-up in exports in commodities and electronic products to China and the rest of Asia," he said.

Malaysia s $303 billion economy has been growing at an average six percent rate since 2009 due to domestic driven growth.

Yeah said Malaysia should post a 4.9 percent growth for 2013 due to improvement in exports and firm domestic demand, adding that the positive trend will spill over to 2014.

The government announced in October that it would levy an unpopular consumption tax starting in 2015 as it seeks to ease growing concern over the country s soaring debt.

Following years of massive populist spending, it also said key subsidies would be slashed.

Malaysia has one of Asia s highest debt-to-GDP ratios.

Debt clouds have been gathering over Southeast Asia s third-largest economy, with Fitch ratings agency in July warning Malaysia to get its financial house in order or face a possible sovereign-debt downgrade.