KUALA LUMPUR, Feb 9 — Investment banks have remained positive on Malaysia’s manufacturing sector outlook in 2026, citing resilient domestic demand, reduced tariff uncertainty, and steady investment activity as key factors supporting growth.
RHB Investment Bank Bhd (RHB IB) said its 2026 Industrial Production Index (IPI) projection stands at 4.1 per cent, compared with 3.6 per cent in 2025.
“The robustness of recent IPI data, together with robust export performance and manufacturing Purchasing Managers Index (PMI) readings, reinforces our optimistic outlook.
“Manufacturing activity is expected to be driven by resilience in external demand amid a favourable regional economic outlook and easing tariff risks, continued strength in domestic private consumption and business activity, alongside supportive government policies,” it said in its Economics View report today.
RHB IB added that the robust domestic demand is expected to continue supporting industrial activity in 2026, underpinned by steady private consumption and investment.
“Household spending is likely to remain resilient, driven by sustained income growth and confidence in the labour market.
“This momentum will be reinforced by ongoing government measures aimed at boosting household purchasing power, including targeted subsidies and social protection programmes,” it said.
Policies promoting local production and the development of small and medium enterprises are also expected to strengthen domestic supply chains and stimulate economic activity.
“Additionally, targeted incentives will support high-impact sectors such as pharmaceuticals, semiconductors, artificial intelligence (AI), digital technology, and sustainability,” RHB IB said.
Besides that, export-oriented industries are poised to benefit from a positive external demand outlook, supported by accelerating global activity, robust electrical and electronics (E&E) demand, and easing tariff risks.
“A favourable environment in 2026 is likely to bolster export-oriented industries’ performance, particularly in key sectors such as electrical and electronics (E&E), machinery, and commodities, as stronger regional demand sustains trade momentum and supports the country’s diversified export base.
“The global technology upcycle will continue to bolster the E&E cluster, driven by robust demand for semiconductor chips used in AI applications and digitalisation,” it said.
The conclusion of the United States (US)-Malaysia reciprocal trade agreement has significantly improved Malaysia’s trade outlook and strengthened support for the country’s trade and manufacturing momentum.
RHB IB noted that despite its sanguine view, it remains cognisant of potential downside risks from major trade partners, including a possible slowdown in demand in the European Union and China, which could weigh on external demand.
“Additional risks include shifts in US trade policy, evolving regional trade dynamics, and the potential introduction of sector-specific levies, particularly on semiconductors,” it said.
The positive outlook is supported by recent data, with MBSB Investment Bank Bhd (MBSB IB)noting that Malaysia’s IPI growth accelerated to 4.8 per cent year-on-year (y-o-y) in December 2025.
“Although the pace was slightly below its estimate of 5.0 per cent y-o-y, stronger growth was anticipated on the back of improved export performance in December 2025,” it said in a separate note.
The expansion was driven by stronger manufacturing output, which rose 6.7 per cent y-o-y in December 2025, up from 4.9 per cent in November, underpinned by higher production of export-oriented products such as E&E products, computers and peripheral equipment, and machinery and equipment, as well as food products, basic metals, and motor vehicles.
“Electricity generation also rose faster, expanding 3.7 per cent y-o-y in December 2025 from 2.7 per cent in November, marking its fastest growth since November 2024 and reflecting higher energy consumption,” MBSB IB said.
Resilient external trade performance and sustained domestic demand in late 2025 are expected to continue supporting production in consumer-related and export-oriented sectors, particularly the E&E sector, amid the global technology upcycle.
