PETALING JAYA: Electronics manufacturers are heading into the final quarter of 2026 on a stronger footing, prompting Kenanga Research to raise its full-year manufacturing output growth forecast to 7% from 6.1%.
The revision follows a 9.4% year-on-year jump in manufacturing output in September, the strongest in four years.
Electrical and electronics (E&E) production grew 17.3%, a 49-month high, while output of computers, electronic and optical products rose 19.3%, according to Kenanga Research.
The factory gains helped lift the industrial production index (IPI) by 6.3% in September, up from 5% in August and above the 5.8% consensus estimate cited by Kenanga Research. Electricity output rose 10.7%, while mining contracted 9.4%.
“Manufacturing IPI grew 7% in January-September 2026 (January-August: 6.6%) on robust E&E output, with little sign of the second half or 2H26 slowdown we had expected,” Kenanga Research said.
The research house said export-oriented manufacturing grew 10.7% in September, up from 9.1% in August, while growth in domestic-oriented output picked up to 6.6% from 3.9%. Motor vehicle, trailer and semi-trailer production rose 10.6% after falling 5.3% in August.
Hong Leong Investment Bank (HLIB) Research attributed the turnaround to a low comparison base following maintenance shutdowns in September last year.
The outlook for factories remains favourable. Kenanga Research pointed to Malaysia’s manufacturing purchasing managers’ index, which rose to 51 in October from 49.9 in September, signalling a return to expansion.
HLIB Research expects technology demand to sustain industrial activity even as the global manufacturing index eased to 52.6 from 53.
“Despite emerging concerns over potential headwinds to the ongoing artificial intelligence or AI upcycle, we maintain our view that global tech demand will remain expansionary in the near term and continue to anchor Malaysia’s industrial activity, while sustained strength in domestic demand should provide underlying support to the sector,” HLIB Research said.
The mining slump weighed on the broader industrial sector in the third quarter.
Mining output contracted 6.7% after expanding 9.4% in the second quarter, pulling IPI growth down to 5.3% from 7.7%. Manufacturing growth accelerated to 7.8% from 7.4% over the same period.
An economist expects Malaysia’s IPI to rise 4.3% in 2027, following a 5.7% increase in the first nine months of 2026.
“Industrial output is expected to grow at a slower pace as manufacturing momentum eases, the semiconductor upcycle matures and year-on-year comparisons become less favourable.
“Demand linked to AI, wider adoption of digital technologies and continued technology investment should support manufacturing,” he told StarBiz.
Kenanga Research expects third-quarter gross domestic product (GDP) growth of 5.1%, below the Statistics Department’s advance estimate of 5.3%. It cited slower industrial production growth and potentially weaker services activity amid the haze.
Both research houses forecast full-year GDP growth of 5.3% for 2026. HLIB Research projects growth will ease to 4.7% in 2027 and sees scope for monetary policy normalisation in the first half of next year, given growth momentum and inflation risks.
