Malaysia’s Industrial Production Index (IPI) growth slowed to 1.5% year-on-year in February 2025, down from 2.1% in January and below market expectations.
The slowdown was attributed to weaker mining and electricity output, partly due to seasonal factors with February typically experiencing lower production due to fewer working days. This was partially offset by stronger manufacturing expansion.
The manufacturing index expanded by 4.8% year-on-year in February (January: 3.7%), driven by stronger growth in electrical & electronic (E&E) products (8.0%; January: 7.2%) and food, beverages & tobacco (10.4%; January: 7.0%). Domestic-oriented manufacturing expanded by 2.9% (January: 0.2%), supported by higher output in food processing products (8.6%; January: 7.0%), fabricated metal products (6.4%; January: 4.8%), and printing & reproduction of recorded media (8.7%; January: 6.8%). Export-oriented manufacturing growth remained steady at 5.7% (January: 5.6%), aligned with the surge in exports in February. Key drivers for export-oriented manufacturing were computer, electronics & optical products (8.4%; January: 7.9%), vegetable and animal oils & fats (17.7%; January: 8.9%), and chemical products (5.7%; January: 2.7%).
However, the manufacturing index contracted by 5.4% month-on-month, marking the third consecutive month of contraction and the lowest since April 2024. The mining index plunged by 8.9% year-on-year, the lowest since November 2020, due to a broad-based decline led by a sharp fall in natural gas output (-10.3%; January: 1.4%) and a second consecutive month of decline in crude petroleum output (-6.7%; January: -10.0%). The electricity index also contracted by 2.8% year-on-year, the lowest in 25 months.
Kenanga IB said the 2025 forecast for the manufacturing index remains at 4.7% (2024: 4.4%), with expectations of continued growth supported by a low base in early 2024, the ongoing technology upcycle, and steady domestic-oriented output.
Escalating global trade tensions are identified as the main downside risk, but the impact is believed to be minimal as Malaysia could benefit from trade and investment diversion due to its neutral stance and favorable trade and investor-friendly policies amid the US-China decoupling.
The house is keeping its 2025 GDP growth forecast at 4.8% (2024: 5.1%), relying on resilient domestic demand, particularly in the services and construction sectors, with external headwinds expected to have a manageable impact on export-driven sectors.
