PETALING JAYA: Industrial production is expected to remain on an expansionary path albeit at a measured pace as domestic demand continues to provide support while the external environment turns more challenging.
Growth in the industrial production index (IPI) is projected to normalise, with forecasts pointing to a 3.4% increase amid softer global growth and lingering trade-related uncertainty, according to Hong Leong Investment Bank (HLIB) Research.
The outlook is anchored by improving manufacturing conditions entering the year and steady momentum carried over from late 2025.
While downside risks persist, the research house said recent indicators suggested that production activity had begun the year on a firmer footing, supported by resilient consumption and selective recovery in export-oriented segments.
It said the latest annual performance of the IPI was broadly aligned with its expectations, noting that the full-year print was consistent with its view that stronger external demand and sustained private consumption were supporting the broader economy.
It highlighted a modest improvement in global manufacturing conditions, pointing out that the purchasing managers’ index (PMI) for the sector rose to 50.9 in January from 50.4 last December on the back of stronger output, new orders and future output, while new export orders continued to decline.
“Malaysia’s manufacturing sector is expected to remain resilient against persistent global trade uncertainty, supported by continued export expansion and steady domestic demand,” HLIB Research said.
It has kept its 2026 gross domestic product (GDP) growth forecast unchanged at 4.5%.
BIMB Research is more cautious on the pace of expansion but remained constructive on the direction of growth.
“We project 2026 growth of 3.4% for the IPI, reflecting continued normalisation amid a softer and more uncertain global growth environment,” it said.
The research house expected the industrial sector to sustain its recovery, supported by domestic demand and exports from the electrical and electronics segment.
It cautioned, however, that external risks remained in the radar, including potential changes in US tariffs, geopolitical tensions, commodity price volatility and climate change.
Meanwhile, TA Research said the solid performance of the manufacturing sector, alongside stable mining output, remained the key driver of industrial growth in the final quarter, as reflected in advance GDP estimates, which projected manufacturing growth at 6% and mining growth at 1.1% for 2025.
It noted that recent leading indicators remained encouraging, with the manufacturing PMI signalling a modest but sustained expansion in operating conditions.
The Statistics Department revealed that the IPI growth accelerated to 4.8% year-on-year in December 2025 from 4.3% in November 2025, exceeding the median consensus estimate of 4.5%, driven by stronger manufacturing and electricity output that offset a contraction in mining.
For 2025, IPI growth was broadly stable at 3.6%, slightly below the 3.7% recorded in 2024, with all major sectors remaining in expansion.
An analyst told StarBiz that the trajectory for industrial output remained positive, but growth is entering a normalised phase as external conditions turned less supportive.
“How durable the current upswing proves will hinge on domestic demand strength and the sector’s ability to absorb global trade and cost-related shocks,” he explained.
