By Saurabh Chaturvedi

Malaysia's economy picked up more than expected in the third quarter, breaking a sequence of decelerating growth as robust domestic demand and private-sector investment countered the impact of soft global demand on exports.

Gross domestic product expanded 4.3% in the July-September quarter compared with a year earlier, breaking a stretch of decelerating growth from early 2015, data from Malaysia's statistics department showed Friday.

The reading was higher than a median forecast of 4.2% growth by 11 economists polled by The Wall Street Journal. Southeast Asia's third-largest economy grew 4.0% on year during the second quarter.

"Although growth in Malaysia is currently relatively subdued, it is projected to pick up as policy measures gain traction and global prospects improve," according to note circulated by Bank Negara Malaysia said at a news conference in Kuala Lumpur.

Quarter-on-quarter figures also showed a recent acceleration of growth. Compared with the previous three months, Malaysia's economy grew 1.5% on a seasonally adjusted basis in the third quarter, accelerating from 0.7% in the second quarter.

Malaysia has been grappling with softer prices for oil and gas exports since mid-2014. The central bank said in August that growth in the second quarter ended June was the slowest in almost seven years, as net exports declined. The central bank had already taken the surprise move of cutting interest rates in July for the first time in seven years to support the economy.

The services sector, which makes up more than half of Malaysia's gross domestic product, grew 6.1% in the third quarter.

Manufacturing activity grew 4.2% while the construction grew 7.9%.

Mining sector grew 3.6%. Private sector consumption expenditure climbed 6.4%.

The government's economic growth forecast for 2016 is between 4.0% and 4.5%. Last year, Malaysia's GDP expanded 5%.

Last month, Prime Minister Najib Razak warned that 2017 would be another tough year for the economy, though the government's slightly more optimistic forecast of 4.0% to 5.0% growth suggests the worst may be over for now.

3rd Qtr 2nd Qtr

Gross Domestic Product +4.3% +4.0%

Manufacturing +4.2% +4.1%

Services sector +6.1% +5.7%

Mining sector +3.6% +2.6%

Agriculture sector -5.9% -7.9% %

Construction sector +7.9% +8.8%

Private Sector Consumption +6.4% +6.3%

Celine Fernandez in Kuala Lumpur contributed to this article.

Write to Saurabh Chaturvedi at saurabh.chaturvedi@wsj.com

(END) Dow Jones Newswires

November 10, 2016 23:28 ET (04:28 GMT)

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