KUALA LUMPUR (Nov 10): Malaysia’s industrial output is expected to maintain its strong momentum in the final quarter of the year amid resilient external trade and a rebound in manufacturers' operating conditions, say economists.

"Manufacturing is expected to remain firm, supported by the global electronics upcycle and capacity expansion in high-value industries,” RHB Research said in a note on Tuesday (Nov 10).

However, upstream cost pressures from oil price volatility amid geopolitical tensions remain a key risk, it said.

The official date released earlier Tuesday showed that growth in the industrial production index (IPI), which measures output from factories, mines and power plants, came in stronger than expected at 6.3% in September from a year earlier.

The September growth was also higher than the median forecast of 5.6% in a Bloomberg survey of 12 economists and accelerated from August’s 5% growth.

Meanwhile, the manufacturing purchasing managers' index (PMI) returned to expansion in October to 51 from 49.9 in September, MBSB Research noted, as new orders and output improved, partly supported by AI-related demand.

“The stronger PMI suggests manufacturing growth could be sustained into the fourth quarter of 2026 (4Q2026), although rising material and transport costs and supply-chain uncertainties may temper momentum.

“In other words, Malaysia’s economy will continue to grow in 4Q2026, with industrial output expected to continue growing on the back of growing domestic and external demand,” MBSB said in a note.

BIMB Securities, meanwhile, said that while the manufacturing sector will remain supported by AI-driven demand, the overall IPI growth may be affected by digitalisation trends and ongoing technology investments, as well as persistent weakness in mining output due to lower crude oil and natural gas production.

“External risks, including commodity price volatility, geopolitical uncertainties and softer global demand, also warrant caution," it said.

“Nevertheless, sustained strength in the electrical and electronics sector is expected to underpin Malaysia’s industrial expansion and keep IPI growth on a steady footing in 2027,” BIMB Securities added.