EXPORT growth in Malaysia is expected to recover in 2013, Standard Chartered Bank (StanChart) said.
Sluggish export growth had eroded Malaysia's traditionally-strong trade balance surplus to below its long-term average.
Exports contracted 1.5 per cent year-on-year in the third quarter, after modest 2.8 per cent growth in the second quarter.
"We expect the current trends to continue until 2013 when export growth recovers," said economists Jeff Ng and Edward Lee in a report on Tuesday.
Export growth in Malaysia was supported only by mild increases in exports to Singapore, Indonesia and the US as it suffered from dwindling demand from the euro area and certain parts of Asia.
The adverse impact was most keenly felt in the electrical, textile and paper product industries.
During the period of the third quarter ranging from July to September, externally-oriented industrial production growth saw a flat growth, while domestic-oriented industries registered positive growth.
"Coupled with solid private consumption growth, the domestic economy mitigated the first quarterly year-on-year decrease since the third quarter of 2009."
StanChart described Malaysia as an outperformer in the region in terms of growth, having carved out a strong growth despite challenging external conditions.
It expects a slight moderation in the fourth quarter. For 2013, it expects growth to remain "respectable" at 4.7 per cent.
For the third quarter, the economy reported a 5.2 per cent growth, bringing GDP growth to 5.3 per cent for the nine months of 2012.
They commented that the third quarter growth painted an unchanged picture of overall stability in Malaysia.
Sector-wise, services growth outperformed manufacturing, growing seven per cent year-on-year, while domestic-oriented service sectors such as finance (10.1 per cent), real estate and business (7.2 per cent), and communication services (9.1 per cent) performed better than externally oriented sectors, such as transport and storage (3.7 per cent) and wholesale trade (2.8 per cent).
"We believe the economy will remain on a growth trajectory for the rest of 2012."
Malaysia's leading indicator has remained steadily positive on a year-on-year basis for the past six months, hinting that economic growth continues to remain stabilised by domestic demand.
"However, the leading indicator dipped in September, suggesting a slight and temporary slowdown in the fourth quarter."
The labour market in Malaysia remains tight, with the latest unemployment rate on a downward trend to only 2.7 per cent in August from 3.1 per cent in July.