KUALA LUMPUR (March 12): Malaysia’s industrial production is expected to maintain its positive growth this year, said economists, who however cautioned that escalating global trade tensions could weigh on external demand.

This comes after the industrial production index (IPI) for January, released on Wednesday, showed a 2.1% year-on-year growth. This is the 13th consecutive month of positive growth for the index which measures output from factories, mines and power plants.  

The January growth was, however, lower compared with the 2.7% growth predicted in a Bloomberg survey and December’s 4.6% year-on-year rise.

On a month-on-month basis, the index declined 0.4% in January, the same pace as in December, according to the Department of Statistics Malaysia.

Commenting on the January IPI performance, MIDF Research said “the moderation was expected” due to slower export growth.

The research house has maintained its 2025 IPI growth forecast of 3.4%, following a 3.8% expansion last year.

“Despite the slower growth in January this year, we continue to expect IPI to continue expanding this year as firms strive to fulfil growing demand,” MIDF said in a note.

It expects production to pick up in line with the increase in new orders, followed by the improvement in the purchasing managers’ index, which rose to 49.7 in February. While this indicator of the direction of economic trends in the manufacturing and service sectors remained below the 50 mark, it was higher than the January reading of 48.7 and December 2024's reading of 48.6.  

A reading above 50 indicates expansion, while a reading below 50 points to contraction.

MIDF said it remains cautious on the likelihood of rising production costs and weaker external demand restraining production activities.

This is against the backdrop of the intensified trade tensions following hikes in import tariffs announced by the US government, which could affect this year’s trade and manufacturing outlook, the research house said.

In a separate note, Kenanga Research said it expects stronger growth for the manufacturing sector in 2025, forecasting a 4.7% expansion for the full year, compared to the 4.4% expansion recorded in 2024.

The research firm attributed the optimism to an ongoing tech upcycle, resilient demand, steady labour market conditions, and record-high government spending under Budget 2025.

Kenanga also said the realisation of record-high approved investment recorded last year may boost manufacturing output by increasing production capacity.

While the research house expects downside risks from the escalating global trade war, it believes the impact on Malaysia will be minimal, as the country could benefit from trade and investment diversions given its favourable trade and investment policies.

It also noted that Malaysia could benefit from trade and investment diversions amid shifting global supply chains.

However, it cautioned that a weaker-than-expected recovery in China’s economy could dampen its manufacturing growth trajectory.

Kenanga has kept its 2025 gross domestic product growth forecast at 4.8%, down from 5.1% in 2024, citing the moderation to last year’s high base, normalising domestic economic activity, and global economic uncertainty amid the ongoing global trade war.

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