Kenanga Research has maintained its 2026 GDP growth forecast at 5.3% despite Malaysia’s industrial production growth slowing more sharply than expected in July, saying underlying manufacturing momentum remains relatively firm and continued strength in the electrical and electronics (E&E) sector should cushion weakness elsewhere.
Malaysia’s Industrial Production Index (IPI) grew 4.7% year-on-year in July, slowing from 8.5% in June and falling short of Kenanga’s 5.5% forecast and the 5.4% market consensus.
On a month-on-month basis, industrial output contracted 2.0%, reversing from June’s 5.5% increase. Kenanga noted that the decline was steeper than the 10-year average contraction of 1.3%, suggesting some loss of momentum at the start of the third quarter.
The manufacturing index expanded 6.4% year-on-year, easing from 7.3% in June and marking its slowest pace in four months.
The moderation was partly driven by weaker growth in transport equipment and other manufacturing activities, which slowed to 4.5% from 9.4% previously.
Nevertheless, E&E manufacturing remained a key source of support, expanding 13.3%, only marginally below the 13.6% recorded in June.
Output in the computer, electronics and optical products segment remained particularly strong at 14.0%, compared with 14.9% previously.
Export-oriented manufacturing growth moderated to 6.7% from 7.6%, its slowest pace in five months.
The segment was affected by a deeper contraction in vegetable and animal oils and fats, which fell 9.7%, compared with a 7.2% decline in June. Coke and refined petroleum products, meanwhile, grew 2.9% compared with 1.1% previously.
Domestic-oriented manufacturing also moderated, expanding 5.8% against 6.4% in June.
Growth in motor vehicles, trailers and semi-trailers slowed sharply to 4.2% from 12.6%, although this was partly offset by stronger printing and reproduction of recorded media, which accelerated to 7.6% from 3.7%.
Manufacturing output contracted 2.0% month-on-month, compared with a 7.6% increase in June.
Mining was the main drag on overall industrial production, with the index contracting 3.2% year-on-year, reversing June’s 3.1% growth.
Crude petroleum output plunged 13.1%, extending the 3.3% contraction recorded a month earlier, while natural gas production growth slowed to 3.6% from 7.4%.
Mining production also fell 4.1% month-on-month, marking its fourth consecutive monthly contraction.
Kenanga said the decline was substantially steeper than the 10-year average contraction of 1.2%, pointing to persistent weakness in mining activity.
The electricity index, meanwhile, grew 5.0% year-on-year, moderating from 6.7% in June. On a monthly basis, electricity output rebounded 3.8% after falling 2.9% previously.
Despite July’s softer figures, Kenanga maintained its 2026 manufacturing IPI growth forecast at 5.0%, compared with 4.5% in 2025, with a slight upside bias.
Manufacturing production expanded 6.5% in the first seven months of 2026, suggesting the underlying trend remains healthy despite heightened global uncertainties.
Kenanga said continued strength in E&E production indicates that external demand remains supportive, while resilient export-oriented manufacturing should help offset weaker commodity-related output.
However, the sharp monthly decline in overall industrial production indicates some moderation in economic momentum as the third quarter gets underway.
Kenanga also retained its 2026 GDP growth forecast of 5.3%, compared with 5.2% growth in 2025.
The research house expects economic growth to moderate during the second half of 2026 as temporary support that boosted activity in the first half dissipates and favourable base effects fade.
Nevertheless, it believes the moderation could prove milder than initially expected, supported by resilient manufacturing activity and continued strength in technology-related external demand.
