KUALA LUMPUR, May 13 ― The local economy expanded by 4.2 per cent in the first quarter versus 5.6 per cent last year as external shocks and cautious private spending took its toll, Bank Negara Malaysia (BNM) announced today.

Governor Datuk Muhamad Ibrahim said consumer spending will continue to drive growth as the impact of the Goods and Services Tax and resulting price adjustments are set to pass, supported by government measures to increase disposable income.

Private consumption expanded by 5.3 per cent in the same period, up from 4.9 per cent in the last quarter.

“The economy is expected to grow on a steady path for 2016 supported by private spending,” Muhamad told reporters here.

All major sectors posted lower growth, with manufacturing dropping to 4.5 per cent for the first quarter compared to 5.0 per cent in the previous quarter.

Agriculture contracted by 3.8 per cent compared as hot weather dragged commodities output down. The sector grew 1.5 per cent in the final quarter of 2015.

Inflation rose to 3.4 per cent in in the first three months of the year, a 1.2 per cent increase from the preceding quarter, but BNM said it expected this to moderate in the second quarter of this year.

Favourable labour market conditions as seen in wage growth in the manufacturing sector also helped offset inflation effects on spending, BNM said. Wage growth steadied at 7 per cent in the first quarter this year.

Meanwhile unemployment climbed marginally in the first quarter likely due to massive layoffs triggered by sluggish external demand, although the central bank said the rate was not yet alarming.

“Unemployment may be bit higher but the rate is still stable,” Muhamad said.

Despite posting the slowest quarterly growth in nearly seven years, the central bank said the economy remains on track to grow by 4 to 4.5 per cent for 2016.

The central bank said it expected higher production in the manufacturing sector from added capacity, improved commodities output and higher wages to drive growth for this year.

The bank said it would continue to keep the Overnight Policy Rate at 3.25 per cent to support growth.

“At the prevailing level of the OPR, monetary conditions remained supportive of economic activity,” the bank said in a statement.