PETALING JAYA: The manufacturing sector is expected to maintain its growth momentum into the final quarter of financial year 2026 (4Q26), supported by new orders, stronger export demand and sustained production activity.
However, rising operating costs, supply chain disruptions and subdued business confidence could temper the pace of recovery, particularly among non-electrical and electronics (E&E) manufacturers.
TA Research said October’s improvement in the purchasing managers’ index (PMI) suggested that manufacturing activity had entered 4Q26 on a stronger footing, although several challenges remain.
The seasonally adjusted S&P Global Malaysia Manufacturing PMI rose to 51 in October from 49.9 in September, returning to expansionary territory.
The latest reading marked the strongest improvement since April, with manufacturing conditions improving in four of the past five months.
“October’s PMI improvement, supported by recovering new orders, renewed production growth and continued hiring, suggests that manufacturing activity entered 4Q26 on a stronger footing,” TA Research said.
“However, higher operating costs, inventory adjustments and subdued business confidence remain potential constraints,” it added.
TA Research, therefore, anticipates some moderation in overall economic growth during 4Q26, following the strong performance recorded earlier in the year.
“Our existing 2026 gross domestic product (GDP) growth forecast remains at 5.1%, with upside potential should manufacturing and external demand sustain their momentum,” it explained.
Phillip Capital Research said stronger demand for artificial intelligence or AI-related products had contributed to the improvement, while domestic export data suggested several other industries had also recorded stronger export activity, potentially supporting higher production.
“Solid momentum in the E&E sector is expected to continue supporting overall manufacturing activity.
“We maintain our view that manufacturing will remain an important driver of Malaysia’s economic growth in the near term,” it said.
The research house cautioned supply chain disruptions and inflationary pressures remained downside risks, while subdued near-term sentiment could limit the scope for a strong rebound in non-E&E industries.
MBSB Research said the rebound above the 50-point threshold indicated that manufacturing activity had regained momentum at the beginning of 4Q26.
It highlighted stronger new orders, improving export demand and sustained hiring as factors supporting industrial production.
This is alongside Malaysia’s stronger-than-expected GDP growth of 5.3% year-on-year in 3Q26 and trade expansion of 53.7% in September.
Nevertheless, rising input costs, persistent supply chain disruptions and weaker business sentiment remained key risks.
MBSB Research noted geopolitical tensions in the Middle East and elevated transportation costs could continue to pressure manufacturers’ margins and contribute to higher producer price inflation.
Meanwhile, one analyst told StarBiz the manufacturing sector’s recovery appears to be gaining traction.
“Malaysia’s E&E industry is expected to remain a key growth anchor over the medium term, but global economic uncertainties remain a key risk,” he said.
