PETALING JAYA: Malaysia’s industrial activity is expected to moderate through the second half of 2026 (2H26), although resilient manufacturing demand should continue to support economic growth.
The outlook remains underpinned by semiconductors and electronics, domestic demand and structural electricity consumption, even as external and geopolitical risks could bring greater volatility.
TA Research said the July industrial production index (IPI) reading pointed to a normalisation in industrial activity following stronger growth in 1H26.
Manufacturing remained relatively resilient, expanding 6.4% year-on-year (y-o-y), and should continue to be an important contributor to gross domestic product (GDP) growth in the third quarter of this financial year.
“We expect the pace of expansion to moderate from the strong 1H26 performance, rather than signalling a broad-based deterioration in industrial activity,” it said.
IPI growth moderated to 4.7% y-o-y in July from 6.5% in June, undershooting market expectations of 5.6%.
The softer print was driven by a 3.2% contraction in mining, compared with 3.1% growth previously, while manufacturing and electricity output slowed to 6.4% and 5%, respectively.
TA Research maintained its 2026 GDP growth forecast at 5.1%, with manufacturing, particularly electrical and electronics (E&E), expected to remain a key growth anchor.
“Overall, the July IPI reading does not materially alter our view of the Malaysian economy,” it said.
“The moderation is consistent with our expectation for growth to normalise in 2H26 following the strong 5.7% expansion recorded in 1H26.”
The research house noted that E&E production rose 14.0% y-o-y in July, while E&E manufacturing sales increased 17.8%, suggesting firm demand for semiconductors, electronics and technology.
Hong Leong Investment Bank Research similarly viewed the softer July reading as largely a mining-related distortion rather than evidence of broader industrial weakness.
“We opine that the softer expansion in July was a mining-driven distortion rather than a broader weakness in industrial activity,” it said, maintaining its 2026 GDP growth forecast at 5.3%.
The research house pointed to an improvement in the global manufacturing Purchasing Managers’ Index, which rose to a three-month high of 52.3 in August from 52.1 in July.
It expects Malaysia’s economy to remain supported by firm exports, particularly semiconductors and E&E, resilient domestic demand and improving tourism activity.
Apex Securities Research, meanwhile, said the moderation was also consistent with fading front-loading effects, with manufacturers scaling back purchases amid sufficient stock holdings.
“Nonetheless, we expect manufacturing activity to remain relatively firm, ruling out a sharp deterioration at this juncture,” it said.
Apex Securities Research maintained its 2026 manufacturing growth forecast at 6.2% y-o-y, compared with 4.5% in 2025, and its GDP forecast at 5%.
One analyst told StarBiz that while the industrial sector will likely to moderate in 2H26, the underlying trend remains healthy.
“Resilient domestic activity and continued demand for high-value electronics should help cushion the impact from softer global trade conditions,” he explained.
He added that sustained investment in data centres, digital infrastructure and the broader semiconductor ecosystem should provide a longer-term floor for Malaysia’s industrial activity.
