Economists expect Malaysian industrial production to decline in the months ahead as support from front-loading activities to beat US tariffs unwinds.
The comments came despite the country’s industrial production index (IPI) growth beating expectations in June, expanding 3% year-on-year (y-o-y). Both export- and domestic-oriented industries remained resilient with 2.4% and 5.6% y-o-y expansions.
In a note on Thursday, BIMB Securities Research underlined that part of this strength may reflect front-loading activity ahead of the impending US tariff hike.
With US reciprocal tariffs set to come online on Friday, Aug 8, the research house expects growth momentum to moderate in the second half of 2025 as earlier front-loading unwinds and external headwinds intensify.
More near-term, BIMB Securities expects the export-oriented sector to see a short-term lift ahead of the August US tariff deadline, and adds that further downside risks remain.
Washington firmed up a 19% tariff on Malaysian exports to the US effective Aug 8, on a par with regional neighbours Thailand and the Philippines, and slightly below Vietnam’s 20%.
“This adds to the challenging global environment and may dampen export momentum once the tariffs come into effect,” BIMB Securities noted.
Of greater concern is the surprise 100% tariff on semiconductor products US President Donald Trump announced on Thursday.
While details are bare, BIMB Securities noted that should it materialise, the impact would be “substantial”, given electrical and electronics (E&E) products account for 40% of Malaysia’s total exports.
“Broader tariff coverage would pose significant risks to Malaysia’s trade outlook, investor sentiment, and external sector performance, adding further pressure to the near-term outlook, especially for export-reliant industries already contending with weak global demand and persistent supply chain disruptions,” the house said.
Export-oriented sectors expected to face the brunt of both direct US tariffs on Malaysia and broader spillover from ongoing trade tensions are the E&E, crude materials and machinery industries, according to RHB Research in a separate note.
“Going forward, we will closely monitor sector-specific tariffs, which could have substantial implications for Malaysia’s export-driven industries,” it added.
BIMB Securities and RHB Research’s notes provided no IPI forecasts. Meanwhile, MBSB Research maintained its projection of 2% y-o-y IPI growth in 2025, a moderation from 3.7% in 2024.
While MBSB Research also remains cautious that weaker foreign demand could affect production activities in July, the house expects sustained growth in domestic spending to drive production of domestic-oriented goods.
Meanwhile, it noted front-loading activity seen earlier in the year — which resulted in prints above 2% y-o-y jumps in the IPI for January, March, April, and now June — will keep IPI growth in the positive on a full-year basis.
Source: theedgemalaysia