KUALA LUMPUR (Dec 2): Malaysia’s manufacturing sector faces several headwinds to sustain its current strong recovery momentum into 2026, analysts warned.
Next year's growth "will depend on navigating risks" including softer US demand, geopolitical tensions, supply chain disruptions, rising costs, export competitiveness erosion on the ringgit's strength, and potential delays in investments, TA Securities said.
November's purchasing managers index (PMI) of 50.1 marked its first expansion in 18 month, with business confidence reaching its highest level since 2013.
"Year to date, the PMI has averaged 49.4, consistent with a sector in the early stages of recovery, with clearer signs of stabilisation emerging towards year end," TA Securities said.
The data also showed new orders expanding for the third consecutive month to their 43-month high, said Kenanga Research, as higher US tariffs prompted clients to redirect shipments away from the market and helped boost inflows to Malaysia’s manufacturing sector.
"However, caution remains as the lagged impact of US tariffs may weigh on external demand after the year-end festive season.
Even so, exports of E&E (electrical and electronics) sector should stay resilient as they remain exempt from higher tariffs, while domestic-oriented manufacturing will benefit from firm domestic demand, continued government spending under Budget 2026 and the roll-out of the 13th Malaysia Plan," Kenanga Research said.
Upbeat sentiment may also reflect the US-Malaysia Reciprocal Trade Agreement, which grants market access and circumvents 18% tariffs on selected goods, said MBSB Research.
Concurrently, a stronger reading is expected for October's industrial production index (IPI), supported by strong September data and a sharp surge in exports "which signals a potential uptrend in IPI growth and stronger momentum ahead".