The growth was powered by the private and public sectors against a backdrop of weaker external demand.

Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz said based on the first quarter growth, the baseline scenario for this year remained.

“If conditions deteriorate, we expect the gross domestic product’s (GDP) growth to be closer to  five per cent.”

Zeti said this at a media briefing yesterday.

A Business Times poll of 22 research houses yesterday showed that on average, they had expected GDP to  grow 4.26 per cent for the first quarter.

Bank Negara said during the first three months, growth in the construction sector strengthened significantly, driven mainly by civil engineering and residential activities, while  the agricultural, mining, manufacturing and service sectors  showed slower growth.

Compared with the fourth quarter of last year,  GDP declined by 3.2 per cent, but Zeti said the first quarter generally posted the weakest growth in the year.

She said private investments, including household demand, had become robust from January to March,  taking up 64 per cent of total investments, prompting the central bank to rein in household demand with macro prudential measures.

Bank Negara’s responsible lending guidelines, enforced since the beginning of the year, she said, was taking effect.  “Lending to the household sector has moderated, although it remains high, but it is not our intention to choke off and bring lending to negative.”

Following the move to curb speculative buying, she said,  there was hardly any instance of multiple lending to a  borrower to buy properties.

“With rising income and stable labour conditions and access to financing, we expect domestic demand to remain on a steady growth path.

“We are beginning to see an increase in private sector investor activities and there has been some increase in foreign direct investments.”

On concerns about the fiscal position, she said 94 per cent of  total financing came from  domestic sources.

“External financing  accounts for only two per cent of  GDP, so we don’t have the kind of exposure that several countries in Europe have.

“We are also in an environment of ample liquidity and high savings, so the government’s reliance (on domestic sources) has not crowded out private sector activity.”

The government’s commitment to consolidation was a gradual process, but that also involved improving revenue collection and sources of revenue, she added.

On external demand, she said more efforts must be put in to improve the demand for Malaysian products as the country had  diversified markets and links to emerging markets, such as Latin America, Middle East and Africa.

The weightage of exports and imports to the Malaysian economy had shrunk to 160 per cent from 200 per cent previously, due to the increased importance of the domestic economy, Zeti said.