PETALING JAYA: The shifting sands of global trade will continue to affect Malaysia’s exports outlook and impact overall economic growth going into 2026.
This is despite the better-than-expected industrial output for September as measured through the industrial production index (IPI) released last Friday which will support economic growth in the third quarter of financial year 2025 (3Q25).
However, economists have also pointed out that the stronger industrial output growth should be mirrored in the gross domestic product (GDP) figures for 3Q25, for which the government estimates to grow by 5.2% year-on-year (y-o-y).
It would be releasing 3Q25 GDP data this Friday. Malaysia’s GDP expanded 4.4% y-o-y in 2Q25.
The IPI expanded 5.7% in September compared to the previous month’s 4.8% following a robust 5% increase in manufacturing, with mining surging 10.2% and electricity increasing 2.8%. Manufacturing contributes two-thirds to the IPI weightage.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said manufacturers continue to be cautious amid concerns over the impact of US tariffs on the global supply chain despite the marked improvement in the IPI in 3Q25 at 4.9% compared to 2% in 2Q25.
He pointed to the country’s manufacturing purchasing managers’ index (PMI) for October showing a contraction for 17 consecutive months as indicating weak business sentiments for a protracted period.
The manufacturing PMI measures new orders and inventories and tracks business sentiments for the sector.
A drop below the 50-point level indicates a contraction.
Mohd Afzanizam said manufacturing firms have opted to lower their prices to stimulate sales and to remain competitive.
He added that the trade deal Malaysia signed with the United States provides more clarity, which would help ensure the country’s manufactured goods remain competitive.
Socio-Economic Research Centre executive director Lee Heng Guie projects the manufacturing sector outlook to remain challenging due to the moderate global economic growth in 2026.
He noted that shifting trade policy would impact Malaysian exports of non-semiconductor products to the United States.
“We maintain our cautious outlook of exports and the export-oriented industries in the manufacturing sector,” Lee said, adding that economic growth would hinge on domestic demand on stable labour market conditions and continued income support policies supporting consumer spending together with ongoing public infrastructure projects expected to underpin public and private investments.
Mohd Afzanizam said the ongoing fiscal consolidation would also result in more savings that can be channelled back to the economy in the form of cash transfers while the commitment to reforms would also boost investor confidence leading to longer-term investments in the form of foreign direct investment and short-term investments in the bond markets.
MBSB Research has revised IPI growth higher for 2025 to 3.2% from 2% following the release of the September IPI data.
Malaysia’s industrial output expanded 3.7% in 2024.
It said the forecast considered the more resilient IPI expansion in recent months.
“In fact, the encouraging growth suggests moderation thus far is not as significant as we anticipated previously.
“In particular, the front-loading activities and the positive outcome from recent trade negotiations eased concerns about a sharp slowdown in the external demand, as reflected by the sustained growth in production and export performance.
“We believe the resilience in the manufacturing sector and recovery in mining output will be among positive factors contributing towards more robust 3Q25 GDP growth,” it added.
TA Research said a clearer picture of Malaysia’s overall economic performance would emerge once the government releases data today on the volume index of services and distributive trade index, with construction statistics released tomorrow.
“We believe the 3Q25 figure will come align with the Statistics Department’s advanced estimates and maintain our view that if the economy sustains a growth rate of around 4.7% y-o-y in 4Q25, Malaysia’s full-year GDP growth will likely reach the upper end of the Finance Ministry’s target range of 4.3% to 4.8% y-o-y,” the research house said.
Hong Leong Investment Bank Research said Malaysian industrial activity has continued to strengthen since bottoming out at 0.3% increase in May although momentum remains moderate relative to regional peers, with Singapore posting 16.1% y-o-y growth and Vietnam expanding 12.7%.
Global manufacturing PMI expanded to 50.8 in October compared to 50.7 in September.
While the manufacturing sector continues to be resilient amid a recovering mining sector, there remains lingering caution among manufacturers with the future output index falling by 1.3 points as US tariffs, elevated geopolitical tensions and risks of economic slowdown in major economies weigh on sentiments.
“Nevertheless, Malaysia’s diversified economic structure is expected to help cushion growth against external headwinds.
“Overall, we maintain our 2025 GDP at 4.5% and 2026 GDP forecast at 4.1%,” it said.
BIMB Research said recent IPI and manufacturing data suggests that front loading activities among US businesses persisted despite the August tariff implementation.
It said the full impact of the tariffs would likely emerge in 4Q25 as earlier gains from pre-emptive shipments taper off.
The United States imposed a 19% reciprocal tariff rate on Malaysian manufactured goods, with exemptions for semiconductor products for now.
