Hong Leong Investment Bank (HLIB) Research has maintained its 5.3% GDP growth forecast for Malaysia in 2026, viewing the moderation in July industrial production as largely a mining-driven distortion rather than evidence of broader weakness in economic activity.
Malaysia’s Industrial Production Index (IPI) expanded 4.7% year-on-year in July, slowing from 6.5% in June and falling short of the median market forecast of 5.6%.
HLIB said the moderation reflected a 3.2% contraction in mining output, compared with 3.1% growth in June, alongside slower growth in manufacturing and electricity production.
Manufacturing output expanded 6.4% year-on-year, against 7.3% previously, while electricity production growth moderated to 5.0% from 6.7%.
On a seasonally adjusted month-on-month basis, overall industrial production declined 0.1%, improving from the 0.5% contraction recorded in June. Manufacturing rose 1.1%, but this was offset by a 4.9% decline in mining and a 0.2% fall in electricity production.
Despite slower headline manufacturing growth, HLIB highlighted continued strength in Malaysia’s electrical and electronics (E&E) industry.
Export-oriented manufacturing expanded 7.7% year-on-year, easing from 8.3% in June, with E&E production maintaining double-digit growth of 13.3%, compared with 13.6% previously.
The performance was consistent with continued strength in E&E exports, which surged 51.0% year-on-year in July, albeit moderating from 57.0% growth in June.
Production of petroleum, chemical, rubber and plastic products grew 1.7%, while wood, furniture, paper products and printing increased 5.5%.
Domestic-oriented manufacturing growth moderated to 3.6% from 4.8%, partly due to slower production of transport equipment and other manufactured products.
Motor vehicle production growth, in particular, eased sharply to 4.2% from 12.6% in June. Food, beverages and tobacco production grew 1.2%, while non-metallic minerals, basic metals and fabricated metal products strengthened to 5.9%.
Mining was the main drag on industrial production, contracting 3.2% year-on-year after expanding in the previous month.
Crude petroleum production fell 13.1% year-on-year, accelerating from a 3.3% decline in June, while natural gas production growth moderated to 3.6% from 7.4%.
HLIB said the July slowdown therefore appeared to be driven primarily by mining rather than a broad deterioration in Malaysia’s industrial sector.
Externally, the research house noted that the global manufacturing Purchasing Managers’ Index rose to a three-month high of 52.3 in August, from 52.1 in July, supported by improvements in output, new orders and expectations for future production.
Looking ahead, HLIB expects Malaysia’s economy to remain supported by firm exports, particularly semiconductors and E&E products, resilient domestic demand and improving tourism activity.
The research house maintained its 2026 GDP growth forecast at 5.3%, alongside a 2.0% inflation forecast and year-end Overnight Policy Rate of 2.75%. It expects the ringgit to average RM4.10 against the US dollar in 2026.
