The Industrial Production Index (IPI) moderated to +4.7% YoY in July (Jun: +6.5%), below consensus of +5.6%, led by a sharp decline in mining.
The AI-driven tech upcycle supports our broad optimism on the manufacturing outlook.
We expect manufacturing activity to remain relatively firm in 2H26, ruling out a sharp deterioration at this juncture.
Key downsides include a high base effect from last year, elevated producer cost pressure, uncertain US trade policy and haze conditions.
We keep our 2026 manufacturing growth forecast at +6.2% YoY (YTD: +6.5%; 2025: +4.5%).
July print below expectations
IPI growth moderated to +4.7% YoY in July (Jun: +6.5%), undershooting market expectations of +5.6%. The softer print was driven by a contraction in mining (-3.2%; Jun: +3.1%), while manufacturing (+6.4%; Jun: +7.3%) and electricity output (+5.0%; Jun: +6.7%) slowed. On a month-on-month basis, IPI declined by 2.0% MoM, partly reflecting the seasonal moderation typically observed in July.
Mining sector a drag
Mining fell on a sharp decline in petroleum (-13.1% YoY; Jun: -3.3%) and a slowdown in natural gas (+3.6%; Jun: +7.4%) output, resulting in a 0.6ppt drag on headline IPI growth (Jun: +0.5ppts). While the mining sector could benefit from elevated energy prices, we expect domestic mining activity to remain moderate in the coming months as base effects normalise.
Manufacturing remained the key growth driver, though moderating slightly to +6.4% YoY (Jun: +7.3%). The export-oriented cluster maintained its steady momentum, expanding +6.7% (Jun: +7.6%), supported by “electric & electronic products” (+13.3%; Jun: +13.6%), “machinery & equipment” (+14.6%; Jun: +10.6%) and “wearing apparel” (+2.8%; Jun: +0.2%), consistent with the improving external backdrop over the past year.
Meanwhile, the domestic-oriented cluster eased to +5.8% YoY (Jun: +6.4%). Softer momentum in “motor vehicles, trailers & semi-trailers” (+4.2%; Jun: +12.6%), “transport equipment” (+1.2%; Jun: +3.1%) and “paper & paper products” (+4.1%; Jun: +6.3%) was partly offset by firmer “food processing products” (+7.2%; Jun: +6.3%) and “basic pharmaceuticals, medicinal chemical & botanical products” (+8.3%; Jun: +6.4%).
Robust tech demand remains the key anchor
The sustained strength in the external sector reinforces our broad optimism on the manufacturing outlook. In particular, the AI-driven technology upcycle should continue to lift Malaysia’s export-oriented segment, which accounts for c.46% of total manufacturing output. The Semiconductor Industry Association (SIA) projected global semiconductor sales to remain robust, reaching USD1.5tn in 2026 (2025: USD800bn) and USD1.9tn in 2027.
Steady outlook despite headwinds
Malaysia’s manufacturing PMI remained in expansion territory at 50.2 in August (July: 50.7). However, new orders continued to grow only marginally, contributing to a moderation in production. In addition, manufacturers reported that sufficient stock holdings led them to scale back buying activity. This reinforces our earlier view that the recent strength in industrial activity, partly driven by frontloading, is likely to wane in 2H26. Nonetheless, we expect manufacturing activity to remain relatively firm, ruling out a sharp deterioration at this juncture.
Other key downsides to Malaysia’s industrial production outlook include: i) high base from last year’s strong 2H25 performance; ii) elevated cost pressure for producers; iii) potentially unfavourable US trade policy; and to a lesser extent iv) haze conditions, which could disrupt logistics and lengthen raw material lead times.
Maintain growth forecast
Manufacturing production grew at a solid +6.5% year-to-date. We thus maintain our 2026 manufacturing growth forecast at +6.2% YoY (2025: +4.5%), reflecting a steady albeit moderating production trend in 2H26 amid a more challenging and uncertain macro environment. We also maintain our 2026 GDP forecast at +5.0% (2025: +5.2%).
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 | 4.053949 | 4.086353 |
| EUR | 4.728418 | 4.733216 |
| CNY | 0.606578 | 0.607189 |
| HKD | 0.517165 | 0.520800 |
| SGD | 3.206074 | 3.228639 |