Malaysia's industrial output is expected to remain strong in the final quarter

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Malaysia's industrial output is strong

Highlights

Malaysia's industrial production index (IPI) surged 6.3% in September 2023, beating the median forecast of 5.6% and August's 5% growth.
The manufacturing PMI returned to expansionary territory in October with a reading of 51, signalling stronger demand and output driven by AI and a recovery in high-tech sectors.
Upstream cost pressures stemming from oil price volatility and a prolonged decline in mining output remain key risks, but the electrical and electronics sector is expected to sustain IPI growth through 2027.

This article was translated from the original. Read the original version by our correspondent here.

September data and fourth-quarter indicators

As reported by The Edge Malaysia, Malaysia's industrial production index (IPI) rose 6.3% year on year in September, beating the median forecast of 5.6% in a Bloomberg survey of 12 economists and accelerating from 5% growth in August.

RHB Research said in a note on Tuesday that the manufacturing sector is expected to remain resilient, supported by the global electronics upcycle and capacity expansion in high-value industries. Meanwhile, MBSB Research said the manufacturing purchasing managers' index returned to expansionary territory in October, rising to 51 from 49.9 in September, as new orders and output improved, partly supported by AI-related demand.

MBSB said the stronger PMI points to sustained manufacturing growth through the fourth quarter of 2026, although higher material and transport costs, as well as supply chain uncertainty, could slow momentum. The firm also expects Malaysia's economy to continue growing in 4Q2026, with industrial output supported by rising domestic and external demand.

Cost risks and outlook for key sectors

While the outlook remains encouraging, RHB Research warned that upstream cost pressures stemming from oil price volatility amid geopolitical tensions remain a key risk for the sector.

BIMB Securities said the manufacturing sector continues to be supported by AI-driven demand, but overall IPI growth could be affected by ongoing digitalisation trends and technology investment, as well as a prolonged decline in mining output due to lower crude oil and natural gas production.

According to BIMB, external risks, including commodity price volatility, geopolitical uncertainty and softer global demand, also warrant caution. Nevertheless, continued strength in the electrical and electronics sector is expected to support Malaysia's industrial expansion and keep IPI growth on a stable trajectory in 2027.

As we noted earlier, the 2027 semiconductor budget allocates funding to help local firms move into higher-value segments.

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