KUALA LUMPUR: Malaysia’s industrial growth will remain supported by resilient domestic demand and sustained global technology demand despite potential headwinds to the artificial intelligence (AI) investment cycle, said Hong Leong Investment Bank Bhd.
Its economists Felicia Ling and Chong Lih Herng said the global technology upcycle would continue to anchor the country’s industrial activity in the near term, while sustained strength in domestic demand would provide an additional buffer for the sector.
They said the latest industrial production data reflected improving momentum, with the industrial production index (IPI) expanding 6.3 per cent year-on-year (YoY) in September, up from five per cent in August.
The growth also exceeded the median consensus estimate of 5.6 per cent, driven by stronger manufacturing and electricity output, which more than offset a deeper contraction in mining production.
HLIB said the global manufacturing purchasing managers’ index (PMI) moderated slightly to 52.6 in October from 53 in September, while the output PMI eased to 53.1 from 53.8.
However, new orders, employment and new export orders remained close to recent peaks, while the inventory PMI pointed to rising stockbuilding activity.
“Despite emerging concerns over potential headwinds to the ongoing AI upcycle, we maintain our view that global tech demand will remain expansionary in the near term and continue to anchor Malaysia’s industrial activity,” the economists said in a note.
They added that strong growth momentum and inflationary risks heading into 2027 could also pave the way for monetary policy normalisation in the first half of next year, although the overnight policy rate (OPR) remained unchanged in 2026 as anticipated.
“While the OPR was left unchanged in 2026 as anticipated, strong growth momentum and inflationary risks heading into 2027 could pave the way for policy normalisation in the first half of 2027,” they said.
On the September IPI performance, manufacturing output grew 9.4 per cent, accelerating from 7.4 per cent in August, while electricity production expanded 10.7 per cent against nine per cent previously.
In contrast, mining production contracted 9.4 per cent, compared with a 7.4 per cent decline in August, as lower natural gas and crude petroleum output weighed on the sector.
The manufacturing sector’s stronger performance was broad-based, with export-orientated industries growing 10.6 per cent, compared with 9.9 per cent in August, while domestic-orientated manufacturing accelerated to seven per cent from 2.3 per cent.
Within the export-orientated segment, electrical and electronics (E&E) goods production expanded 17.3 per cent, slightly higher than the 16.9 per cent recorded previously.
This was consistent with the robust performance of E&E exports, which surged 69.2 per cent in September, compared with 66.5 per cent in August.
Other export-orientated industries also recorded stronger growth, including wood, furniture, paper products and printing, which expanded 6.1 per cent, while textiles, wearing apparel, leather products and footwear returned to growth at three per cent.
Meanwhile, petroleum, chemical, rubber and plastic products grew 2.7 per cent, against 2.6 per cent in August.
The domestic-orientated segment also recorded a marked improvement, supported by a turnaround in transport equipment and other manufacturing, which grew seven per cent after contracting 1.4 per cent previously.
Motor vehicle production rebounded 10.6 per cent following a 5.3 per cent decline in August, partly reflecting a low-base effect from maintenance shutdowns in September last year.
Food, beverages and tobacco production expanded 7.2 per cent, compared with 1.5 per cent previously, while non-metallic mineral, basic metal and fabricated metal products grew 6.8 per cent against 5.7 per cent.