Malaysia's industrial production index rose 6.3% in September from a year earlier, faster than economists expected, as electronics makers ran their lines harder and offset a deepening slump in oil and gas output, data from the Department of Statistics Malaysia (DOSM) showed on Tuesday.

The reading was up from 5.0% in August and above the 5.6% median forecast in a Bloomberg survey of 12 economists, The Edge Malaysia reported. For investors in Asia, the figures add to evidence that the global build-out of artificial intelligence hardware is flowing straight through Malaysia's factories. They also show how much the economy now leans on a single industry while its traditional resource base shrinks.

Electronics carry Malaysia's factory sector

Manufacturing output, the largest part of the index, grew 9.4% year on year in September, up from 7.4% in August, according to DOSM data reported by Bernama. On a monthly basis the index rose 1.3%, slower than August's 2.6% gain, with manufacturing up 2.9% from the previous month.

Export-oriented industries, which account for about two-thirds of the manufacturing sector, expanded 10.7%, The Edge said. Computer, electronic and optical products made the biggest contribution, followed by vegetable and animal oils and fats. Domestic-oriented industries grew 6.6%, helped by motor vehicles, trailers and semi-trailers, basic metals and processed food.

Sales tell a similar story. Manufacturing sales rose 12.9% from a year earlier to RM191.1 billion in September. Sales in the electrical and electronics subsector jumped 23.9%, according to Xinhua, which cited the statistics department. In August, by comparison, total manufacturing sales had grown 9.9% to RM185 billion and electrical and electronics sales 22.6%, Bernama reported at the time.

Factories are also running closer to full tilt. Manufacturers used 84.9% of their capacity in September, The Edge reported. The electrical and electronics segment ran at 88.6%.

The data fit with other signs of strength in the sector. Malaysia's purchasing managers' index rose to 51.0 in October, its highest since April, on orders linked to AI products, and Penang alone accounted for more than half of the country's record September exports.

Electricity generation grew 10.7% in September, up from 9.0% in August.

Mining slide deepens as oil and gas output falls

The weak spot was mining. Output fell 9.4% from a year earlier, a steeper drop than August's 7.4% decline. Production of crude petroleum and condensate fell 11.8%, while natural gas output was down 7.9%, according to the DOSM figures carried by The Star.

The decline matters beyond the industrial index. Oil and gas remain an important source of government revenue and export earnings, and lower volumes leave Malaysia more exposed to swings in the electronics cycle. In August, crude oil and condensate output had fallen 12.2% and natural gas 4.3%, Bernama reported, so the gas decline accelerated in September even as the oil decline eased slightly.

Third-quarter growth slows from the second quarter

Despite the strong September, the third quarter as a whole was softer than the second. Industrial production grew 5.3% year on year in the July to September period, down from 7.7% in the April to June quarter, DOSM data showed. Manufacturing rose 7.8% and electricity 8.3% in the quarter, while mining contracted 6.7%. Compared with the second quarter, the index rose 4.3%.

Manufacturing sales were stronger on a quarterly basis. They rose 10.7% from a year earlier to RM553.5 billion in the third quarter, faster than 9.3% growth in the second quarter, and were 5.5% higher than in the previous three months, Xinhua reported.

For the first nine months of 2026, industrial production grew 5.7%, double the 2.9% pace recorded in the same period of 2025. Manufacturing sales for January to September reached RM1.58 trillion, up 8.5% from a year earlier, compared with growth of 3.6% in the first nine months of last year.

The gap between output and sales growth is worth watching. Sales are measured in ringgit and include price effects, so higher prices or a richer product mix can lift sales faster than physical volumes. That helps company revenue at Malaysian electronics suppliers, but it also means the headline strength is concentrated in one export industry while domestic-oriented manufacturing grows at a slower pace.

The September jump came after a 2.0% month-on-month contraction in July and a 2.6% rebound in August, according to Bernama's report on the August data, a pattern that suggests factory activity picked up steadily through the quarter. Manufacturing employment stood at about 2.4 million workers in August, up 1.2% from a year earlier, a far slower pace than the growth in sales.

For the fourth quarter, the key question is whether electronics demand can keep outrunning the mining drag. With the electrical and electronics segment already using 88.6% of its capacity, further gains in output will depend increasingly on new production lines coming on stream rather than on idle capacity being switched back on.