Malaysia is banking on strong domestic consumption to help it weather the global slowdown, after the country reported its first quarter of economic contraction since the beginning of 1999.

In the July and September period, Malaysia's economic output, or GDP, contracted by 1.3%, worse than most economists had expected.

The electronics industry was particularly hard hit, operating at just 62% of capacity thanks to the consumer spending crunch in the US, the industry's prime export market.

Analysts blamed the situation on a narrowing government deficit, the result of curbs in state spending.

Growth for the full year is expected by the government to be 1-2%, ahead of many predictions but far below the 8.5% seen in 2000.