PETALING JAYA: Economists remain cautious about Malaysia’s manufacturing and industrial sectors, even as the country has begun 2026 on a strong footing by posting a 5.9% year-on-year (y-o-y) growth to its Industrial Production Index for January.
The expansion, which accelerated from December’s 4.8% and surpassed the market’s expectation of 5.0%, would have reinforced optimism that the economy can maintain steady growth this year.
However, experts warn that global uncertainties, from geopolitical tensions to trade policy risks, will continue to cloud the outlook.
The country’s manufacturing base, particularly export-orientated industries such as electronics and electrical (E&E), remains a key pillar of resilience.
At the same time, domestic demand and electricity generation are helping to broaden industrial momentum.
According to Apex Securities, the outlook remains constructive despite a more challenging global environment.
“The artificial intelligence (AI)-driven semiconductor upcycle, together with resilient domestic consumption, should continue to support Malaysia’s manufacturing sector,” the research house said in a note to clients yesterday.
Manufacturing production expanded 7.3% y-o-y in January, improving from 6.7% in the previous month.
Electricity output also strengthened, rising 6.3% compared with 3.8% growth in December, while the mining sector returned to positive territory with a marginal 0.1% increase after contracting 2.5% previously.
Concurrently, Hong Leong Investment Bank (HLIB) Research noted that the data indicated a broad-based recovery in industrial activity across key segments.
Apex Securities continues to see the E&E industry as a crucial driver of Malaysia’s industrial output and exports.
Despite the encouraging start to the year, experts are signalling caution towards the external environment.
They cited ongoing geopolitical tensions, particularly the possibility of escalating conflict in the Middle East, could disrupt global trade flows and energy markets.
Apex Securities warned that uncertainties surrounding global trade policies and geopolitical risks remain key downside factors. It added: “While lingering uncertainty surrounding US tariff policy and the US-Iran conflict has raised external risks, we expect the impact on Malaysia’s economy to remain limited and manageable at this juncture.”
Resonating with that relatively defiant tone, economist Geoffrey Williams told StarBiz that Malaysia’s strong manufacturing performance shows that pessimism about geopolitical issues may be overstated.
Despite acknowledging that the cautious outlook is “justified”, he pointed to the encouraging performance in January of ground manufacturers that was showing not just resilience but also growth.
“The strong ringgit makes import component costs cheaper and allows manufacturers to increase output even if it is held as stocks for future sales.
“The conflict in the Middle East looks like it will be short-lived, and so the economy will stabilise after that.
“In this scenario we can expect good manufacturing performance this year,” said Williams.
Mohd Harridon Mohamed Suffian, an economist and associate professor at the Universiti Kuala Lumpur Business School, observes that local and international demand levels should be taken into account to ascertain Malaysia’s growth outlook for the year, especially in light of recent events.
“There would be cyclical hiccups due to the surge of prices for materials as the geopolitical tension in Iran persists.
“It is expected that there would be normalisation of prices if the situation is deflated holistically,” he told StarBiz.
Mohd Harridon said Malaysia’s manufacturing industry is expected to experience substantial economic headwinds due to ongoing developments in Iran, although he said the sector could mitigate these financial challenges with financial prudence.
He added that past data from 2025 had indicated that local manufacturers were resilient enough to counter the trade tariffs imposed by the United States.
“Within this context we can foresee substantial growth of the manufacturing industry.
“However, it needs to be cautious of the expected inflationary values that could affect the country, as the surge of fuel prices would inflate certain manufacturing processes and raw materials,” he said.
Meanwhile, TA Research, recognising that the current environment is still dimmed by rising geopolitical tensions, agreed that a key transmission channel through which such tensions could affect Malaysia’s economic sectors is commodity price volatility, especially crude oil prices, which can influence production costs, investment decisions, and overall industrial activity.
On top of that, a CNBC report on Tuesday quoted a number of analysts who warned that a drawn-out conflict in the Middle East could impact the semiconductor industry’s access to key materials, while rising costs could hit demand for chips that have been central to the AI boom.
“A prolonged regional conflict could potentially disrupt chipmakers’ manufacturing operations regarding sourcing materials like helium and bromine.
“For now, the impact appears to be limited.
“However, a prolonged conflict could eventually lead to disruptions or require adjustments in the sourcing of key materials,” said Ray Wang, memory analyst at SemiAnalysis.
Research director at Counterpoint Research MS Hwang said electricity accounts for about half of a data centre’s operating expenses and roughly half of that is used to power memory.
“Therefore, if memory prices continue to rise due to supply chain instability while energy-driven operating costs also climb, customers operating data centers may reduce their capital spending and semiconductor demand,” he added.
Of interest, worldwide manufacturing activity had strengthened in February, with the global manufacturing purchasing managers’ index rising to 51.9 from 50.9 in January.
The increase reflected broad-based gains in output, new orders, and expectations for future production, signalling a more positive outlook for the sector.
HLIB Research said the tariff rollback imposed under the US International Emergency Economic Powers Act has reinforced optimism among manufacturers and exporters, following easing trade restrictions.However, it said the recent escalation of the Middle East military conflict introduces downside risks to growth, potentially dampening global trade and economic activity if it continues to extent for a prolonged period.
“Nevertheless, Malaysia’s gross domestic product (GDP) is expected to remain on an expansionary path, supported by its diversified economic structure, its status as a net energy exporter and the ongoing global tech upcycle.
“For now, we maintain our 2026 GDP growth forecast at 4.7%,” said the research house.
