KUALA LUMPUR (April 14): Global trade tensions are threatening export-oriented factories, and Malaysia would have to rely more on domestic demand to help keep up growth, economists said.

Despite the latest US tariff reprieve, uncertainty over future trade actions remains elevated, Public Investment Bank warned in a note to clients. The doubts may weigh on confidence and delay investment decisions, particularly in electronics and high-value manufacturing, it said.

Sectors that have not been spared from the tariffs are still vulnerable while global supply chains remain under strain, the research house flagged. Apart from direct trade exposure, Malaysia also faces risks from weaker external demand and broader macro-financial spillovers, it said.

Malaysia’s industrial production growth decelerated in February as contraction in mining output and electricity generation offset gains in manufacturing activity. Both policymakers and economists are now banking on resilient domestic demand to help keep its factories humming.

The industrial production index — which measures output from factories, mines, and power plants — rose 1.5% in February from a year earlier. However, the pace was softer than January’s 2.1% year-on-year increase.

Close to 45% of Malaysia’s exports to the US will be spared from blanket 10% tariffs, bringing Malaysia’s effective tariff rate down to 5.5% from a flat 10%, according to Hong Leong Investment Bank’s estimates. Companies may delay orders until there is greater clarity, the research house said.

Economic growth in the first quarter may moderate, Maybank Investment Bank said after also looking at data on wholesale and retail trade as well as on palm oil production. “The risk to economic trajectory is on the downside amid extreme uncertainties,” the research house flagged.

TA Securities similarly warned of a more moderate growth in the first quarter given the trend but put its hope on strong household spending and ongoing infrastructure projects to help sustain domestic demand.  

The government is due to release advance estimates for gross domestic product on April 18 and the second, full estimates in May.

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