KUALA LUMPUR (March 10): Malaysia’s industrial production is expected to sustain its upward momentum this year but an escalation in the Middle East conflict and uncertainties surrounding US tariffs could dampen trade flows and export growth, said economists on Tuesday.
This following the release of the industrial production index (IPI) for January, which showed a 5.9% year-on-year growth. The reading is in line with the increase in industrial output seen in other major exporting nations including China, South Korea, Singapore, Vietnam and Taiwan.
January’s growth was higher compared with the 5.0% average growth predicted by Bloomberg’s economists and December’s 4.6% year-on-year gain. On a month-on-month basis, the index was up 0.7% in January, according to the Department of Statistics Malaysia.
In a research note, BIMB Research projected Malaysia’s IPI to grow 3.4% in 2026, supported primarily by resilient domestic demand, even as the global growth environment remains soft and uncertain.
However, it said growth is expected to moderate from last year partly due to base effects from the front-loading of production activities, particularly within export-oriented sectors.
Still, firms are likely to maintain steady production levels to meet ongoing domestic consumption and external demand, said BIMB.
The research house cautioned that Malaysia's economic growth faces downside risks from heightened global geopolitical tensions and volatile commodity prices, which are increasing business expenses through higher oil price and freight costs. While direct conflict exposure is limited, elevated inflationary pressures and rising operational costs threaten the economic outlook.
In a separate note, Kenanga Research retained its 2026 manufacturing IPI forecast at 3.5% amid the cautious global backdrop, compared to the 4.5% expansion recorded in 2025.
The research firm said an escalation of the US-Iran conflict and seasonal festive-related closures may limit manufacturing momentum in the near term, but expects the electrical and electronics sector to remain resilient, supported by robust global demand for artificial intelligence, 5G/6G, electric vehicles and data centre expansion.
Kenanga maintained its 2026 gross domestic product growth forecast at 4.5%.
Meanwhile, RHB Research forecast IPI to grow by 4.1% in 2026, underpinned by strong domestic private consumption and investment, driven by steady income growth and confidence in labour market conditions.
It said US tariff policy shifts offer a net benefit to Malaysia, with the effective export tariff rate dropping from 6.6% to 3.6%, covering 63.9% of Malaysia’s exports to the US, particularly electronics and machinery, remaining largely unaffected.