KUALA LUMPUR (Aug 3): Malaysia’s resilient manufacturing activity and stronger new orders have strengthened the case for an upward revision to economic growth forecasts, analysts said.

This as seasonally adjusted manufacturing purchasing managers’ index (PMI) sustained its level on a month-on-month basis in July, at 50.7 points while new orders increased at its fastest pace in eight months.

Improved external orders and resilient domestic demand are expected to continue supporting the sector in the near term, Kenanga Research said in a note, adding that the economy could potentially grow more than 5% this year on potential upward revision on its third-quarter GDP growth forecast.

However, purchasing activity "expanded modestly, indicating manufacturers remained cautious in scaling up production despite improving demand", it said.

Weaker business confidence and declining employment suggest manufacturers remain cautious amid persistent geopolitical uncertainties, although the sector entered the second half of 2026 on stable footing, it added.

Meanwhile, MBSB Research said it is reviewing its 2026 GDP growth forecast following stronger-than-expected second-quarter economic growth, which accelerated to 5.8% year-on-year from 5.4% in the first quarter.

It said robust export performance and sustained domestic spending could support another year of above 5% growth for Malaysia’s economy.

However, MBSB Research cautioned that the growth outlook could still face downside risks, including prolonged supply disruptions arising from geopolitical tensions, weaker demand prospects and tighter trade regulations, particularly affecting shipments to the US.