Malaysia Manufacturing Momentum Strong Despite Mining Drag, Growth Outlook Lifted

Analysts remain optimistic about Malaysia's industrial production index (IPI), which expanded at a steady 3.1 per cent, although it fell short of the median consensus forecast of 3.5 per cent due to a sharper decline in mining output.

Kenanga Research has upgraded its 2026 manufacturing IPI growth projection following stronger-than-expected production performance in the first quarter of 2026 (Q1), a momentum expected to continue into the second quarter (Q2).

The firm revised its forecast upward to 4.3 per cent from the earlier estimate of 3.5 per cent.

"This is partly underpinned by accelerating stockpiling activity as manufacturers seek to mitigate raw material shortage risks stemming from Middle East-related supply disruptions.

"Stronger output in the first half of 2026 could partially offset a potential slowdown in the second half should second-round effects from prolonged geopolitical tensions and commodity price volatility intensify.

"Encouragingly, the latest manufacturing purchasing managers' index (PMI) rose to 51.6 in April, the highest level in four years, pointing to a solid start for Q2," it said.

Echoing Kenanga Research's view, Hong Leong Investment Bank Bhd (HLIB) said global manufacturing activity improved in April, supported by stronger output and new orders, although some demand was driven by firms frontloading purchases ahead of potential supply shortages and rising costs.

HLIB said while supply chain risks may continue to weigh on Malaysia's commodity-related production, the electrical and electronics sector remains supported by the ongoing global tech upcycle.

Both firms maintained their 2026 gross domestic product growth forecast at 4.5 per cent, although Kenanga Research raised its first-quarter growth estimate to 5.1 per cent from 4.7 per cent, citing stronger manufacturing momentum.

"We expect growth to strengthen in Q2 at 5.3 per cent, supported by inventory accumulation and firmer services activity under Visit Malaysia 2026, which should help offset mining weakness.

"Nonetheless, we expect growth momentum to slow in the second half of 2026 should geopolitical tensions persist, the 2025 base effect weigh, and inventory restocking ease," Kenanga Research said.

Source: www.nst.com.my