Economists have cautioned that Malaysia’s stronger-than-expected industrial output in July may not be sustained, as front-loading of shipments ahead of fresh US tariffs and persistent global uncertainties are likely to temper momentum in the coming months.
Official data on Thursday showed that the Industrial Production Index (IPI) grew 4.2% year-on-year (y-o-y) in July — its fastest pace since December 2024 — surpassing Bloomberg’s median forecast of 2.8% and June’s revised 2.9%.
However, the index, which tracks output from factories, mines and power plants, slipped 0.3% month-on-month.
RHB Investment Bank Bhd noted that while the July figures were supported by stronger manufacturing and a rebound in mining, the sustainability of growth is uncertain.
“We maintain a cautious outlook on the manufacturing sector as external demand may be pressured by the implementation of announced US tariffs and the fading impact of front-loaded trade activities,” said its Global Economics and Market Strategy team in a note.
On a positive note, RHB observed that clearer US tariff policies on Malaysia and the extension of the US–China trade truce until November are expected to provide short-term relief and bolster manufacturing sentiment, while steady domestic consumption should help keep the sector stable.
Similarly, BIMB Securities Research warned that the rebound in IPI was likely inflated by temporary factors.
“The front-loading of shipments ahead of US tariff hikes effective Aug 1 has likely inflated recent readings, but these temporary gains are set to unwind as external demand softens,” it said.
BIMB added that industrial growth is therefore expected to slow in the second half of the year, "with export-oriented sectors facing the brunt of external headwinds”, especially if currently exempted categories like semiconductors and pharmaceuticals are targeted in future tariff rounds.
Nonetheless, BIMB noted that domestic-oriented industries are expected to stay resilient, underpinned by healthy consumer demand and policy measures, while Malaysia’s integration into regional supply chains should act as an important stabiliser against near-term turbulence and help sustain longer-term industrial and trade growth.
Meanwhile, Kenanga Investment Bank Bhd described July’s gains as a solid start to the third quarter of this year, driven by electrical and electronics (E&E) output, which surged 8.5% y-o-y.
“July’s gains point to a strong start for 3Q2025, partly due to frontloading ahead of US tariffs in August,” it said, while maintaining its 2025 manufacturing growth forecast at 3.9%, amid cautious external trade outlook.
The research house flagged that the latest manufacturing Purchasing Managers’ Index, which edged up to 49.9 in August — its highest since June 2024 — signalled more stable conditions in 3Q2025.
However, it cautioned that “risks remain from Trump’s trade stance, especially trade tensions with China,” noting that global uncertainties could dampen the final quarter of the year.
In July, the manufacturing index expanded 4.4% y-o-y, led by E&E products and machinery. Domestic-oriented industries grew 5%, while export-oriented industries accelerated to 4.1%. Mining output rebounded 4.3% after three months of contraction, while electricity generation rose 1.6%.
Source: theedgemalaysia