KUALA LUMPUR (Aug 12): Economists are becoming more optimistic about Malaysia’s industrial production for the rest of the year, following a strong first-half performance.

This is despite the June industrial production index (IPI) growing 6.5% year-on-year (y-o-y), below economists' median forecast of 7.2% and slower than the 8.5% growth recorded in May.

On a quarterly basis, however, IPI growth accelerated to 7.7% y-o-y in 2Q2026 from 4.0% in 1Q2026.

"This reinforces our expectation that 2Q26 GDP growth (final estimate) will remain firm at around 5.8%, with the release scheduled for 14 August," said RHB Research said in a note on Wednesday.

RHB Research and BIMB Securities have both raised their 2026 industrial production forecasts following stronger activity in the first half of the year, particularly in the manufacturing and electrical and electronics (E&E) sectors.

The IPI, which measures output from factories, mines and utilities, is closely watched as an indicator of the health of the broader economy.

RHB Research raised its 2026 IPI growth forecast to 5.8% from 4.9%, citing year-to-date growth of 5.9% and continued strength in E&E production.

The research house expects manufacturing to remain supported by sustained global demand for E&E products, resilient domestic consumption and supportive policy measures.

Export-oriented manufacturers, particularly E&E players, should continue to benefit from the global technology upcycle driven by digitalisation and artificial intelligence (AI), RHB Research said.

However, it cautioned that rising production costs amid volatile crude oil prices remain a risk.

Meanwhile, BIMB Securities raised its 2026 IPI growth forecast to 4.8% from 4.4%, reflecting stronger-than-expected industrial activity in the first half of the year.

BIMB Securities expects manufacturing to remain the main growth driver, supported by an AI-driven upcycle in E&E, firm export demand and sustained technology investments.

E&E output grew 14.2% in the second quarter, marking its third consecutive quarter of double-digit growth and its strongest expansion since the fourth quarter of 2022, amid robust demand for AI-related semiconductor products.

BIMB Securities nevertheless expects industrial growth to moderate in the second half as activities that were brought forward earlier in the year normalise, while commodity price volatility and slower global demand pose downside risks.

TA Securities similarly expects manufacturing activity to continue expanding into the third quarter, albeit at a more moderate pace after the strong performance in the second quarter.

The research house said stronger new orders and a renewed increase in export orders should support manufacturing.

However, modest production growth and subdued business confidence suggest that the strong pace of expansion seen in the second quarter may be difficult to sustain.