KUALA LUMPUR (July 10): Malaysia’s latest industrial production figures have offered a modest boost to the second-quarter manufacturing outlook, though analysts remain wary of underlying weaknesses that could weigh on the rest of the year.
Kenanga Research in a note on Friday raised its manufacturing industrial production index (IPI) forecast to 5% from 4.3% previously, reflecting stronger-than-expected production in the second quarter.
This is after Malaysia's manufacturing IPI, which accounted for 68% of the IPI, expanded 6.6% in May. Overall, the IPI rose 8.4% in May.
Kenanga also noted that, separately, June’s manufacturing purchasing managers index improved to 50.7 from 49.9 in May, with output and new orders returning to expansion, pointing to resilient manufacturing conditions.
"Even so, we stay cautiously optimistic, as front-loaded stockpiling activity is expected to fade in the second half of 2026," said Kenanga.
Separately, TA Securities said May's print was slightly higher than April’s growth but well below the market consensus expectations of 9.4%.
Notably, growth on a month-on-month basis rebounded to 1.3% but “stayed well below the long run average of 4.3%, pointing to only a modest recovery in production momentum”, the research house noted.
The IPI’s solid growth was driven by double-digit growth in the mining sector wherein it surged to 19.8%, a huge jump from April’s growth of 6.8%.
In the first five months of 2026, Malaysia’s IPI expanded by 5.7% year-on-year (y-o-y), supported primarily by continued growth in the manufacturing (6.4% y-o-y) and electricity (6.1% y-o-y) sectors. In addition, the mining sector has shifted to positive territory, increasing by 2.8% y-o-y during the period.
"The latest IPI data points to a more promising growth trajectory in the second quarter. We continue to expect the manufacturing sector to remain a key driver of gross domestic product (GDP) expansion in the second quarter of 2026, supported by resilient domestic demand and frontloaded activities arising from favourable external market conditions," said TA.
The house said that, given the stronger-than-expected performance across key sectors, there is potential for second-quarter GDP growth to exceed its current forecast of 4.9% y-o-y.
"However, it remains premature to revise our full-year GDP growth projection of 4.3%-4.7%, as the outlook remains subject to external developments and the sustainability of domestic demand momentum".
Nonetheless, any upside surprise in second-quarter growth could provide upside risk to TA's full-year forecast, potentially bringing growth closer to the upper end of its projected range.
Looking ahead, market attention will turn to the release of the advance estimate of second-quarter GDP on July 17, it added.