PETALING JAYA: The latest industrial production index (IPI) data tracking manufacturing, mining and electricity output released last week shows that the Malaysian economy is on course for slower growth, as external challenges centring around trade and geopolitics continue to weigh on industrial activities.
The IPI registered a slight growth of 0.3% year-on-year (y-o-y) in May after a 2.7% expansion in April, which was below market expectations for an increase of 2.1% y-o-y, with analysts projecting moderate growth this year against a backdrop of global trade uncertainty and early indications of improvements in manufacturing-sector conditions.
TA Research said the latest IPI data points to a likely moderation in overall economic growth for the second quarter of 2025 (2Q25) despite the manufacturing sector remaining a key driver of gross domestic product expansion, supported by domestic demand and front-loading activity to get ahead of tariffs.
The data remained mixed, as manufacturing output, which grew an average 4.2% y-o-y in the April-to-May period, suggested sustained underlying momentum while the manufacturing purchasing managers index (PMI), which tracks the sector’s market sentiment, improved to 49.3 in June from 48.8 in May. A reading below 50 signals a contraction.
The research house believes the manufacturing PMI reading, the highest since late 2022, signals a gradual improvement in business sentiment despite the index remaining in contraction territory.
Malaysia’s manufacturing PMI has been in continuous contraction since last June. It maintained IPI growth of 2% y-o-y compared with the 3.7% expansion last year.
“Looking ahead, industrial activity is expected to remain highly sensitive to global trade dynamics, domestic demand conditions, and fluctuations in energy prices, particularly amid ongoing uncertainty over US trade policy.
“Ongoing trade tensions, particularly those involving the United States, pose notable downside risks for Malaysia’s export-oriented industries by disrupting supply chain continuity and undermining export competitiveness,” it added.
BIMB Research, which retained an IPI growth forecast of 2.9%, pointed to elevated risks for export-heavy categories such as electrical and electronics products, raw materials, and machinery, with the Aug 1 US tariff deadline and the possible expiry of China-related tariff suspensions on Aug 12 as key turning points.
