PETALING JAYA: While upbeat over the year-on-year (y-o-y) improvement in Malaysia’s industrial production for July following the release of the month’s industrial production index (IPI) report yesterday, economists continue to advocate caution with regards to the general sentiment of the economy.
Although the IPI saw a 4.2% y-o-y improvement in July, it actually experienced a marginal contraction of 0.3% month-on-month, while also decelerating to grow at a slower rate of 2.4% for the first seven months of the year, against 4% for the same period of 2024.
Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said the y-o-y IPI expansion in July was primarily induced by the manufacturing sector, which increased by 4.4%, while the mining sector rebounded to 4.3%.
“The electricity sector grew by 1.6%, remaining positive albeit at a slower rate compared to 2.3% in June 2025,” he said in the Statistics Department’s report.
According to economist at the Universiti Kuala Lumpur Business School Dr Mohd Harridon Mohamed Suffian, the improvement of July’s y-o-y IPI would be seen as an indication that the market demand of products or output is conceptually strong, and industries are catering for the trend to continue.
He added that the improvement of the IPI could escalate the collective value of the nation’s gross domestic product (GDP), commenting that taxation from this revenue is significant and would help boost the government’s coffers.
“These surpluses could then be utilised to provide financial assistance, and establish additional projects that are beneficial to the public,” said Harridon.
Yun Liu, Asean economist at HSBC, reckoned that Malaysia’s y-o-y IPI growth of 4.2% is a nice upside surprise for the market, particularly the growth in electrical and electronics (E&E) intellectual property that saw a strong rally of 8.5% y-o-y.
“This echoes the trend in trade we have seen, where exports have been largely led by double-digit growth in E&E shipments, partially reflecting frontloading activities due to tariffs, but also mirroring the still-elevated demand in artificial intelligence-driven semiconductor cycle, which Malaysia is benefitting from,” she told StarBiz.
Liu said the August tariff verdict has reduced trade uncertainty to an extent, with Malaysia now being placed in the same camp with other Asean emerging markets.
This means that existing beneficiaries of foreign investment like Malaysia will continue to enjoy their advantage over other markets, she said, although she cautioned that there is no room for complacency as the tariff saga is far from over.
“For Malaysia, the fate of semiconductor tariffs is crucial, given Malaysia’s large exposure in the tech supply chain,” said Liu.
Professor of Economics at Sunway University Dr Yeah Kim Leng concurred with Harridon, noting that July’s IPI y-o-y pick-up from 2.9% in June is a reassuring sign that Malaysia’s industrial output growth momentum is being sustained following May’s nearly flat 0.3% expansion.
He said the manufacturing sector, which accounts for 68% of industrial output, grew more robustly at 4.4% y-o-y in July, suggesting that the country’s industrial output and economic growth is accelerating despite continuing global uncertainties and lingering tariff issues with the United States.
Moreover, Yeah told StarBiz that given the mining industry’s significant 25% contribution to the country’s industrial output, the sector’s rebound adds to the resilience of the country’s diversified economic pie.
“Its a sizeable contribution to government revenue will also improve fiscal resilience, notwithstanding its unpredictable up-and-down cycles,” he said.
Julia Goh, senior economist at United Overseas Bank (UOB), said that the stronger IPI performance underscores robust manufacturing activity, believing that a return to growth in mining output will help buffer overall GDP.
On the other hand however, experts are also in agreement that global macro factors will continue to play a significant hand in shaping the outlook of Malaysia’s GDP and production capacity in the months ahead, and likely well into 2026.
Economist Doris Liew, who specialises in South-East Asia development, contends that while Malaysia’s July IPI growth of 4.2% y-o-y is encouraging, the improvement could be a short-term reprieve, rather than a structural upswing.
“The gains were partly due to the frontloading of exports ahead of tariff uncertainties in the United States, and the broader picture remains cautious.
“With slower first seven months of the year y-o-y IPI growth, manufacturers are holding back amid trade volatility, amid signs of weaker global demand, and the risk of a US slowdown spilling over.
“Nevertheless, with exemptions on semiconductors still in place, this provided some support for Malaysia’s heavy E&E shipments moving forward,” she said.
Commenting on trade, Liew is more optimistic as she points to stabilisation, as manufactured exports contracted by a smaller 1.5% in July which hints at a gradual bottoming-out.
“While global headwinds remain dominant, Malaysia’s ongoing diversification strategy into markets such as the European Union, India, China and other parts of Asia may start to bear fruit.
“Taken together, the latest IPI numbers suggest Malaysia’s economy is navigating external volatility with resilience, which is not yet in a strong growth phase, but steadily positioning itself for recovery through diversification, and sectoral strengths,” she told StarBiz.
According to Sunway’s Yeah however, despite moderate exposure to the United States market, Malaysia’s trade sector remains vulnerable to tariff and policy changes in the United States that affect both the American economy and those of its trading partners.
He said elevated uncertainties in the American economy over high import tariffs and unsustainable fiscal policies has caused a slowdown, disrupted global supply chains, dampened consumer and investor confidence and increased volatility in financial and investment flows.
“The softening demand in the United States will have a cascading effect on the world economy that will likely result in a more subdued but still positive trade performance in Malaysia,” he said.
Echoing Yeah’s views, UOB’s Goh also highlighted that despite the resilience in recent data, Malaysia’s trade outlook remains exposed to downside risks through the remainder of 2025 and into 2026.
She said these risks are primarily linked to a host of factors, including potential delays in tariff-related developments, with the US-China trade truce extended to mid-November and sector-specific tariffs under Section 232 still pending confirmation; the full impact of higher reciprocal tariffs, which will only be felt after August; as well as signs of softening demand, as evidenced by decline in intermediate goods imports and consumption goods imports.
Economist Geoffrey Williams was more succinct, explaining that 2025 will continue to throw up variable data due to extraordinary factors such as the tariffs, geopolitical issues and volatile global trade, which may spill over next year.
“The rebound in commodities shows continued reliance on basic industries rather than new industries while for manufacturing, exports were affected by frontloading, so we do not have a turning point yet.
“Net trade is still squeezed and global headwinds are not easing, with new risks emerging even in recent days in the Middle East for example,” he remarked.
As such, Williams said the overall economic scenario is status quo, with growth being supported by domestic factors and sound domestic policy, as trade and global factors will remain unstable for the foreseeable future and will drag on overall growth.
