PETALING JAYA: The country’s industrial production index (IPI) is expected to remain resilient in the coming months, supported by strong export-oriented industries, particularly electrical and electronics (E&E), although geopolitical tensions, volatile oil prices and uncertainty over global demand pose risks to the outlook.
Socio-Economic Research Centre executive director Lee Heng Guie said the growth in IPI, which is a proxy of the overall economy, suggests that economic growth will continue to expand, albeit at a moderate pace compared to the first half of financial year 2026, due to technical high base effects.
“We expect continued strong expansion of the IPI in the months ahead, primarily underpinned by the export-oriented industries, especially the E&E, chemicals and optical equipment while domestic market industries also increased.
“The primary risks to the export-oriented industries are the ongoing geopolitical tensions which triggered oil price volatility; shifting trade policy and the artificial intelligence or AI demand boom risks,” he told StarBiz.
IPI growth edged up to 5% year-on-year (y-o-y) in August (July: up by 4.7%), marginally surpassing the median consensus estimate of 4.9%.
This was underpinned by stronger momentum in manufacturing and electricity production, which offset a steeper contraction in mining output.
Growth in the manufacturing sector inched higher to 7.4% y-o-y in August, fuelled by an acceleration in the export-oriented segment.
Within this segment, the production of E&E goods picked up to 17%, in tandem with a stronger expansion in E&E exports during the month. Meanwhile, partially offsetting the export-oriented momentum, the domestic-oriented segment eased by 2.2% in August.
On the potential risks posed by a weakening in global demand to Malaysia’s manufacturing sector, OCBC senior Asean economist Lavanya Venkateswaran said the economy is exposed to a slowdown, particularly in the semiconductor sector.
“The trend, however, remains supportive of strong E&E appliances exports consistent with the World Semiconductor Trade Statistics forecast of semiconductor export growth of 27% in 2027 after a strong growth of 90% in 2026,” she said.
On the external front, Hong Leong Investment Bank (HLIB) Research noted in a report yesterday the global manufacturing PMI rose to a 55-month high of 53 points in September.
However, the research house cautioned that price pressures persist, with both input costs and factory gate selling prices increasing at a faster pace
To this end, Lee said high-tech value driven industries can absorb rising costs without losing market share while those of lower margins and non-tech sectors will be more vulnerable to rising cost pressures.
Lavanya said the translation from higher input and producer prices onto consumer price inflation has been “slow and uneven”.
She noted blanket fuel subsidies are buffering the impact of higher global oil on consumer price index inflation, and this is “unlikely to change over the next year as confirmed in Budget 2027”.
“That said, pipeline price pressures are building through the impending increase in the minimum wage, the ongoing El Nino phenomenon and sticky global oil prices,” she said.
HLIB Research said going forward, it expects Malaysia’s industrial production to sustain its momentum, anchored by global demand for E&E goods, particularly semiconductor and related products.
“We maintain our 2026 and 2027 gross domestic product growth forecasts at 5.3% and 4.7%, respectively, which sits within the Finance Ministry’s target ranges of 4.8% to 5.3% and 4.2% to 5.2%,” the research house said.
