KUALA LUMPUR (Jan 10): Economists predict that Malaysia’s industrial production output will maintain its positive growth in the coming months, driven by increasing demand, though they remained cautious about potential headwinds arising from growing protectionist policies around the world.

Their projections came after the Department of Statistics Malaysia announced that November’s industrial production index (IPI) — which measures output changes in the manufacturing, mining, electricity and gas industries — grew 3.6%, up from the 2% growth recorded in October and exceeding market expectations of 2.5%.

Their projections indicate that the IPI could achieve annual growth of 3-4% in 2025, building on an estimated 3.4% expansion in 2024. This positive outlook is supported by strong manufacturing output in export-oriented sectors and consistent energy demand, despite ongoing challenges in the mining sector.

“We expect production activities will grow further as we assume domestic economic growth will remain positive, and external demand will continue to increase despite few concerns and uncertainties,” MIDF Research said in its report on Friday.

RHB Research noted that growth momentum could be further boosted by a recovery in the global technology cycle and significant gains in global semiconductor sales.

“The global semiconductor market is expected to close 2024 on a high note, with a revised projection of 19% (versus the former forecast of 16%) by the World Semiconductor Trade Statistics organisation. For 2025, global sales are projected to grow 11.2%,” RHB Research said in a separate note to clients.

Nevertheless, economists highlighted potential risks that could dampen growth, including geopolitical tensions, rising production costs and supply chain disruptions.

“While Malaysia’s export sectors are unlikely to be significantly affected by US protectionism, the indirect effects through China could be substantial, especially in electronics,” RHB said.

To mitigate these risks, Malaysia may need to strengthen ties with trade blocs such as the Regional Comprehensive Economic Partnership (RCEP) and Asean while leveraging domestic demand to cushion external shocks, it added.

MIDF Research, meanwhile, said manufacturers might adopt more cautious production plans due to concerns over the strength of future demand, supply chain stability and increasing costs.

The Department of Statistics Malaysia attributed November’s improved IPI growth to stronger manufacturing performance, particularly in export-oriented sectors such as electrical and electronics, machinery and equipment, and petroleum products.

The electricity sector registered a 3.9% year-on-year increase, marking its 19th consecutive month of expansion. In contrast, the mining sector contracted by 0.8%, primarily due to declining crude oil output, although this was partially offset by increased natural gas production.

On a month-on-month basis, Malaysia’s IPI grew 0.5% in November, slower than the 1.7% recorded in October.

Regionally, Malaysia’s IPI growth outperformed several economies, including Japan, Thailand and the Philippines, where industrial output contracted in November, MIDF Research noted.

“Although we expect manufacturing output to continue growing, this could be constrained by slower new orders as reported by recent PMI reports and the negative impacts from introduction of protectionist trade rules,” MIDF cautioned.