KUALA LUMPUR (Feb 10): Malaysia’s stable industrial production outlook faces rising downside risks from US trade protectionist policies after latest data missed expectations, economists said.

While Malaysia will be spared from being targeted directly due to a modest trade deficit with the US, the domestic economy could face impact from indirect spillover effects through key trade partners, particularly China, said BIMB Securities, following the release of latest industrial production data.

Malaysia’s electrical-and-electronics sector is “deeply embedded in global value chains”, the research house said, noting that potential US-China trade tensions could disrupt Malaysia’s strategic positioning within China-centric supply networks.

The industrial production index — which measures output from factories, mines, and power plants — rose 4.6% year-on-year in December. The rate was a five-month high, with consensus estimate of a 5% growth.

S&P Global data earlier pointed to a meagre improvement in manufacturing conditions in January, as the Purchasing Managers’ Index edged up to 48.7 from 48.6 in December. A reading above 50 points indicates activity expansion, while a reading below 50 points to contraction in the sector.

Despite manufacturing challenges, CIMB Securities noted that strong tourism activity and resilient household spending continue to underpin the services sector, providing a crucial buffer against potential industrial weakness.

Looking forward in 2025, “sustained external demand recovery fuelled by the global tech upcycle, alongside strong investments and resilient consumer spending”, is anticipated to sustain economic growth at 5.0%, said CIMB Securities.

The official forecast calls for gross domestic product to expand 4.5% to 5.5% in 2025.