• The Industrial Production Index (IPI) rose +8.4% YoY in May (Apr: +8.2%), albeit below market expectations of +9.4%, led by a sharp acceleration in mining output.
• Stockpiling activities should continue to support resilient manufacturing production and broader economic activity in 2Q26.
• Growth momentum could moderate in the coming months as the high base from last year kicks in and support from stockpiling activities fades.
• We remain cautious of the lagged impact from elevated material and logistics costs, as well as uneven supply disruptions across sectors.
• We keep our 2026 manufacturing growth forecast at +4.5% YoY (YTD: +6.4%; 2025: +4.5%).
Rebound in mining output lifts headline IPI
IPI extended its firm momentum, rising +8.4% YoY in May (Apr: +8.2%), albeit below market expectations of +9.4%. The expansion was underpinned by a sharp acceleration in mining (+19.8%; Apr: +6.8%), partly offset by moderating growth in manufacturing (+6.6%; Apr: +8.3%) and electricity output (+4.2%; Apr: +10.5%).
Mining expanded for a second straight month, supported by broad-based improvements in petroleum (-0.7% YoY; Apr: -6.4%) and natural gas (+37.4%; Apr: +16.6%), with the latter partly boosted by a low base from weaker production last year. On a month-on-month basis, however, mining output declined by 2.2% (Apr: -1.6%). We expect mining growth to moderate in the coming months as the low base effect dissipates.
Export-oriented sector extends its uptrend
Manufacturing remained the key growth anchor, contributing +5.1ppts to headline IPI growth (Apr: +6.3ppts). The export-oriented cluster strengthened further, consistent with the +45.3% YoY surge in May nominal exports. Output in the export-oriented cluster expanded +8.8% (Apr: +8.5%), supported by gains in “coke & refined petroleum products” (+7.8%; Apr: +4.2%) and “computer, electronics & optical products” (+17.0%; Apr: +14.6%).
Meanwhile, the domestic-oriented cluster slowed sharply to +2.0% YoY (Apr: +8.0%), reflecting softer growth in “food processing products” (+3.7%; Apr: +8.6%) and “basic pharmaceuticals, medicinal chemical & botanical products” (+2.5%; Apr: +5.3%), alongside a sharp contraction in “motor vehicles, trailers & semi-trailers” (-10.3%; Apr: +13.5%).
E&E remains the key anchor
The strength in May’s IPI data partly reflects a low base from last year, alongside inventory accumulation among manufacturers to mitigate supply risks stemming from the Middle East conflict. This reinforces our view that stockpiling activities should continue to support resilient manufacturing production and broader economic activity in 2Q26.
More importantly, sustained strength in E&E remains the key anchor for Malaysia’s export oriented manufacturing sector. We expect E&E output to maintain its firm momentum, supported by robust global semiconductor demand amid rising chip applications across AI, EV and industrial segments. Meanwhile, the domestic-oriented sector should remain supported by still-solid domestic demand, providing further support to industrial activity.
Wary of downside risks in 2H26
That said, we remain cautious on the outlook for 2H26. Growth momentum could begin to moderate in the coming months as the high base from last year’s strong 2H25 performance kicks in and support from stockpiling activities fades. Notably, May manufacturing PMI indicated that firms kept purchasing activity broadly unchanged, suggesting a pause after two consecutive months of inventory frontloading.
Manufacturers also continued to report sharply higher input costs due to the Middle East conflict, although the pace of input cost inflation has started to ease. We remain wary of the lagged impact from elevated material and logistics costs, with PPI rising further to +7.8% YoY in May (Apr: +5.4%), as well as uneven supply disruptions across sectors.
Maintain manufacturing growth forecast for now
Manufacturing production grew at a solid +6.4% year-to-date. For now, we maintain our 2026 manufacturing growth forecast at +4.5% YoY (2025: +4.5%), as production growth is expected to moderate as the stockpiling activity unwinds and the high base from last year’s strong 2H25 performance kicks in.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
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| EUR | 4.658868 | 4.662511 |
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