KUALA LUMPUR (Nov 7): Malaysia's industrial sector may continue its recovery trajectory, supported by resilient domestic demand and easing external risks, even as uncertainty persists over potential US semiconductor tariffs, economists said.
At least two research houses have revised upwards their forecasts on the country's industrial production index (IPI) for 2025, citing sustained momentum across key sectors and a clearer trade policy environment.
The outlook comes after official data released on Friday showed that Malaysia’s IPI climbed 5.7% year-on-year (y-o-y) in September, exceeding Bloomberg consensus estimate of 5.4% and August’s revised 4.8% growth.
On a month-on-month, seasonally adjusted basis, overall industrial output slipped 0.9%, as output in the mining, electricity, and manufacturing sectors eased sequentially.
In a research report, MBSB Research's economist said its in-house IPI growth forecast for 2025 has been revised higher to 3.2% from 2.0%, after taking into account “the more resilient IPI growth in recent months”.
The economist added that the encouraging growth suggests moderation thus far is not as significant as the research house had anticipated previously, and that production activities are expected to continue expanding, backed by growing demand from both domestic and export markets.
Meanwhile, RHB Global Economics & Market Strategy also raised its full-year IPI projection to 3.6% y-o-y from 3.2%.
The research house noted that the sustained momentum in manufacturing and the turnaround in export performance in September reinforce its view that the final gross domestic product (GDP) estimate for the third quarter will likely remain at 5.2% y-o-y, as it was in the second quarter.
This could lead to an upward revision of its full-year 2025 GDP forecast to 4.5%, the research house noted. RHB had previously trimmed its forecast for Malaysia's 2025 GDP twice, from 5.0% in February to 4.5% in April, and then to 4.2% in August.
Kenanga Research, while maintaining its forecast for 2025 as its current estimate already sits at a higher band of 3.9%, said it expects some moderation to 2.7% in 2026, reflecting a cautious outlook amid external uncertainties.
“The recent US-Malaysia trade agreement and easing US-China tensions offer potential upside, but we maintain a conservative view given ongoing external volatility,” Kenanga said in its report.
Tariff clarity to bolster sentiment
According to RHB, the near-term growth will be underpinned by “sustained strength in domestic-oriented industries, easing tariff-related risks, continued resilience in E&E [electrical and electronic] exports, and steady investment activity".
The recent US-Malaysia reciprocal trade agreement is expected to bolster manufacturing sentiment by expanding Malaysia’s exclusion from US tariffs under Annex III of Executive Order 14346, which covers key export products such as palm oil, rubber, cocoa, pharmaceutical components, and aerospace equipment, it noted.
“Roughly 64% of Malaysia’s exports to the US are now excluded from reciprocal tariffs, signalling a notable easing of US tariff risks,” RHB highlighted.
While potential US tariffs on semiconductors remain a watch point, both RHB and MBSB noted that near-term risks appear limited, given that around 65% of Malaysia’s semiconductor exports to the US are produced by American firms locally, indicating strong supply-chain integration and higher exemption probability.
Domestically, both research houses noted that robust private consumption, steady employment, rising wages, and ongoing investment continue to sustain production levels amid global headwinds. Sectors such as food, beverages, and consumer goods remain supported by resilient local orders.
According to RHB, measures introduced in Budget 2026 — including incentives for pharmaceuticals, semiconductors, AI, digital technology, and sustainability — are expected to strengthen Malaysia’s competitiveness and attract quality investments.