KUALA LUMPUR (Oct 9): Malaysia's manufacturing sector is showing stronger growth, but rising production costs and signs of weakening demand could put pressure on factories in the coming months, according to RHB Research.
The research house warned that volatile crude oil prices, particularly amid ongoing tensions in the Middle East, could push up operating costs even as demand for electrical and electronic (E&E) products remains strong.
"Elevated upstream cost pressures remain a key concern to the manufacturing outlook," RHB said in a note on Friday.
Malaysia's producer price index, which measures prices charged by domestic producers, rose 10.7% year-on-year (y-o-y) in August, accelerating from 9.7% in July.
RHB estimated that every 1% increase in Brent crude oil prices could raise producer prices by about 0.03% in the short term and 0.2% over the longer term.
Meanwhile, signs of softer demand have emerged despite the stronger industrial production figures.
Malaysia's manufacturing purchasing managers' index fell to 49.9 in September from 50.2 in August, slipping below the 50-point mark that separates expansion from contraction.
New orders declined for the first time in four months, while production growth slowed to a seven-month low.
Despite these challenges, RHB maintained its 2026 industrial production index (IPI) growth forecast at 5.8%, supported by strong semiconductor demand, resilient domestic activity and continued investment.
Malaysia's IPI expanded 5% y-o-y in August, compared with 4.7% in July, driven by stronger manufacturing and electricity output.
E&E production rose 17% y-o-y during the month, reflecting continued demand for semiconductors and artificial intelligence-related products.
"The manufacturing sector should remain supported by the ongoing global electronics upcycle, growing demand for semiconductors and data-centre-related equipment, resilient domestic consumption and continued capacity expansion, particularly in high-value manufacturing," RHB said.
Looking ahead, the research house expects Budget 2027 to include targeted measures to ease manufacturers' financing and operating costs, alongside efforts to attract higher-value investments and strengthen domestic supply chains.