The Industrial Production Index (IPI) rose further by +6.0% YoY in October (Sep: +5.7%), exceeding market expectations of +5.3%, led by stronger manufacturing output.
Export-oriented cluster recorded another strong month, supported mainly by E&E products.
While near-term tariff concerns have eased, we remain cautiously optimistic on the manufacturing outlook in 2026, given spillovers from the existing 19% US tariff on Malaysian goods and potential US semiconductor tariffs.
The strength in manufacturing points to a solid 4Q25 GDP print and an upside to our current 2025 GDP forecast of +4.5% YoY, potentially closer to +4.8%.
For now, we maintain our manufacturing growth projection of +3.9% YoY in 2025, before easing to +3.4% in 2026. Our GDP forecasts are kept at +4.5% for 2025 and +4.1% for 2026.
Manufacturing lifts headline IPI
IPI extended its solid run, rising +6.0% YoY in October (Sep: +5.7%) and exceeding market expectations of +5.3%. The pickup was led by stronger manufacturing output (+6.5%; Sep: +5.0%), partly offset by softer mining (+5.8%; Sep: +10.2%) and electricity (+1.2%; Sep: +2.8%) production.
Mining was weighed by a broad-based moderation in petroleum (+8.8% YoY; Sep: +13.0%) and natural gas (+3.9%; Sep: +8.5%), reflecting the high base effect from last year. On a month-on-month basis, however, petroleum and natural gas output increased at a solid pace of +11.7% and +9.1% respectively. Overall, we expect mining to continue expanding at a modest pace in the coming months due to the base effect.
Strong run in export-oriented manufacturing
Export-oriented cluster recorded another strong month, in line with the +15.7% YoY surge in October nominal exports. On a 3-month moving average (3mma) basis, export-oriented output rose +4.8% (Sep: +3.7%), supported by firmer growth in “computer, electronics & optical products” (+9.8%; Sep: +8.0%), “electrical equipment” (+9.3%; Sep: +8.5%) and “machinery & equipment” (+8.6%; Sep: +8.3%).
Meanwhile, domestic-oriented manufacturing remained steady at +4.7% YoY (Sep: +4.7%). Stronger momentum in “basic pharmaceuticals, medicinal chemical & botanical products” (+10.9%; Sep: +9.1%) and “transport equipment” (+3.1%; Sep: +1.9%) helped offset softer “food processing products” (+9.1%; Sep: +9.8%).
Cautious optimism despite easing tariff risks
The recent strength in the external sector exceeded our expectations, reflecting an easing in near-term tariff concerns and a firmer global trade prospect. Speculation of a delay in potential US semiconductor tariffs has lifted near-term outlook, while robust global semiconductor demand, currently exempt from US tariffs, continues to support Malaysia’s E&E sector. Furthermore, domestic-oriented industries should also remain resilient on the back of firm domestic demand and supportive policy measures.
While near-term manufacturing outlook is positive, we remain cautious going into 2026. The spillover from the existing 19% US tariff on Malaysian goods could become more pronounced next year as higher costs are passed on to US consumers. Potential US semiconductor tariffs also remain a key uncertainty for Malaysia’s E&E sector, which accounts for c.40% of total exports. That said, the recent US-Malaysia reciprocal trade agreement, under which Malaysia’s semiconductor sector could receive special consideration, should help cap downside risks.
Support for 2025 GDP
The strength in manufacturing points to a solid 4Q25 GDP print and an upside to our current 2025 GDP forecast of +4.5% YoY, potentially closer to +4.8%. The November external trade print, scheduled for 19 December, will provide further clues on the external outlook. For now, we maintain our manufacturing growth projection of +3.9% in 2025 before easing to +3.4% in 2026. Our GDP forecasts are kept at +4.5% for 2025 and +4.1% for 2026.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.071594 | 4.103148 |
| EUR | 4.788661 | 4.792351 |
| CNY | 0.580700 | 0.581157 |
| HKD | 0.523467 | 0.527018 |
| SGD | 3.153405 | 3.174965 |