KUALA LUMPUR (Aug 20): Malaysia's export growth is expected to moderate in the second half of 2026 as factors like US trade policy uncertainties and questions about the sustainability of the artificial intelligence (AI)-driven semiconductor boom weigh on outlook, according to economists.

Exports rose 38% year-on-year (y-o-y) to RM193.6 billion in July, supported by sustained demand for electrical and electronic (E&E) products, petroleum products and machinery, with shipments rising across major trading partners, data from the Ministry of Investment, Trade and Industry (Miti) showed.

However, the pace marked a slight cooldown from both May and June, when exports surged 45.3% and 45.4% y-o-y to RM184 billion and RM177.9 billion respectively — led by E&E and energy-related products.

"Export momentum is expected to moderate in the later part of the year ... premised on year-ago high base effects, potential weather-related disruptions linked to El Niño, heightened financial uncertainties, as well as the gradual unwinding of front-loaded orders placed earlier amid supply chain diversification and inventory-building activities," said UOB Global Economics & Markets Research in a note on Thursday.

The high y-o-y growth rates recorded in May and June were also partly amplified by a lower comparative base in 2025, when exports dropped sharply following the US Liberation Day tariff announcement before rebounding 15.5% month-on-month to RM140.45 billion in July 2025.

Malaysia's increasing integration into the global AI-driven semiconductor supply chain has made chip demand and technology investments increasingly important drivers of its export performance.

RHB Economics and Market Strategy division noted that while the AI investment cycle remains a key tailwind for the technology sector, there are growing pockets of price exuberance across the ecosystem.

"A slowdown in AI-related investment, amid weaker capital expenditure, inventory normalisation or tighter financial conditions, could moderate global semiconductor demand. Given Malaysia’s deep integration into the global semiconductor value chain, such a slowdown could increasingly weigh on the country’s export performance," the research house said.

US trade policy adds another layer of uncertainty. In January, Washington imposed a 25% Section 232 tariff on a specific category of advanced computing chips and certain derivative products. The measure took effect on Jan 15, with exemptions for chips imported for US data centres and research and development.

"While the direct impact on Malaysia remains manageable for now, the possibility of further tariff expansion or tighter rules affecting semiconductors, semiconductor equipment and related downstream products could weigh on export prospects given the sector's significant contribution to Malaysia's external trade," UOB said.

For now, export performance in July remained supported by the ongoing technology upcycle, alongside higher shipments of machinery, equipment and parts, palm oil-related products and transport equipment. By destination, exports were supported by the US, EU and major Asian markets including China, Taiwan, Hong Kong, India and selected Asean economies.

Pantheon Macroeconomics expects the month-on-month acceleration in electronics exports to slow, pointing to softer incoming data from Taiwan.

The UK-based research firm maintained its forecast for Malaysia's GDP growth to ease to 5.4% y-o-y in the third quarter of the year, which would mark a moderation from the official 6% expansion recorded in the second quarter.