Malaysia’s electrical and electronics (E&E) export performance is increasingly tied to global demand for artificial intelligence (AI)-driven semiconductors rather than exchange rate movements, underscoring the country’s deeper integration into the global chip supply chain, RHB Investment Bank Research said Friday.
While sustained investment in AI could continue to support exports and economic growth, any slowdown in semiconductor demand may pose significant risks to the broader economy, the research house said in a note.
RHB findings suggest that Malaysia has become increasingly integrated into the global AI-driven semiconductor ecosystem.
Global semiconductor sales (GSS) have emerged as the key long-run determinant of Malaysia’s E&E exports, with the relationship strengthening over time.
Consequently, Malaysia has become more responsive to fluctuations in the global semiconductor cycle than in previous technology cycles.
The scenario analysis further shows that while Malaysia stands to benefit from continued strength in global semiconductor demand, it is also more exposed to cyclical downturns, with electronic integrated circuits serving as the primary transmission channel to exports and economic growth.
According to the research house, Malaysia’s approved investments have become increasingly concentrated in high-value manufacturing and Information and Communications (ICT) services, particularly in 2025 and 2026.
In 2025, the services sector accounted for MYR 281.3 billion ($68.76 billion), or 65.9 percent of total approved investments, with the ICT sub-sector alone attracting MYR 152.9 billion, driven by AI, data centers, cloud computing and big data.
Meanwhile, the manufacturing sector continued to attract substantial investments in higher-value industries, led E&E with MYR 28.5 billion, alongside chemicals, transport equipment, and machinery and equipment.
FDI inflows into the ICT sector have also continued to strengthen, reinforcing Malaysia’s position as a regional destination for AI-related digital infrastructure and technology investments.
Given Malaysia’s deep integration into the global semiconductor value chain, RHB sees fluctuations in GSS are likely to exert a greater influence on export performance than in earlier periods.
Its results show that electronic integrated circuits, electronic crystals and parts, office machines and automatic data processing equipment, and telecommunications equipment exhibit positive and statistically significant relationships with global semiconductor demand.
These findings indicate that the four product categories are closely integrated into the global semiconductor value chain and are therefore well positioned to benefit from the current AI-driven semiconductor upcycle.
At the same time, their close integration also increases their exposure to cyclical downturns, making them the primary transmission channels through which changes in global semiconductor demand affect Malaysia’s exports and, ultimately, the broader economy.
Among the selected product categories, electronic integrated circuits generate the largest estimated impact on Malaysia’s economy, with a 10 percent change in global semiconductor demand translating into an approximate 1.14 percentage-point change (ppts) in Malaysia’s real gross domestic product (GDP) growth, according to RHB.
This reflects the sector’s substantial export exposure (19.2 percent of GDP), relatively high domestic value-added share (57.7 percent), and strong export responsiveness to global semiconductor demand.
By comparison, electronic crystals and parts exhibit the highest export elasticity but generate a smaller estimated GDP growth impact at 0.34 ppts due to their much lower export exposure (2.7 percent of GDP).
In addition, telecommunications equipment and office machines and automatic data processing equipment generate estimated GDP growth impacts of 0.07 and 0.04 ppts, respectively.
Although both sectors generate relatively high domestic value added, their smaller export shares and lower elasticities to changes in GSS limit their contribution to the overall macroeconomic impact, according to the research house.
“Aggregating the four statistically significant E&E product categories (weights in E&E portfolio adjusted) suggests that a 10 percent change in global semiconductor demand could change Malaysia’s real GDP growth by approximately 1.01 ppts, under the ceteris paribus assumption,
“The magnitude of the impact will vary proportionately with the size and direction of the semiconductor demand shock,” it said.
Overall, the findings indicate that Malaysia’s exposure to the global semiconductor cycle is driven primarily by electronic integrated circuits, reflecting their dominant export share and substantial domestic value added contribution.
RHB also highlighted that the current AI-driven semiconductor upcycle has been considerably stronger than previous expansion phases, with global semiconductor sales growth accelerating to 118.4 percent year on year in 2026, far exceeding the peaks observed during earlier cycles.
While the long-term outlook for semiconductor demand remains favorable, such elevated growth is unlikely to be sustained indefinitely as AI infrastructure investment matures and inventory and capital expenditure gradually normalize, it noted.
It also noted a slowdown in AI-related investment and infrastructure deployment, driven by weaker capital expenditure, inventory normalization, or tighter financial conditions, could moderate global semiconductor demand.
Under the Strong AI Expansion scenario, RHB said a 10 percent increase in global semiconductor demand is estimated to raise Malaysia’s real GDP growth by approximately 1.01 ppts, while a 5 percent increase raises growth by 0.51 ppts.
Conversely, a 5 percent decline under the Moderate AI Slowdown scenario reduces GDP growth by 0.51 ppts, a 10 percent decline under the AI Cycle Moderation scenario lowers growth by 1.01 ppts, and a 15 percent decline under the Severe AI Correction scenario reduces growth by approximately 1.52 ppts.
Nevertheless, it opined that a moderation in AI-driven semiconductor demand should not be interpreted as signaling a collapse in Malaysia’s E&E exports.
It sees semiconductor demand continues to be supported by structural drivers beyond generative AI, including automotive electronics, industrial automation, consumer devices and digitalization.
“As AI investment matures, growth is likely to normalize from the current exceptionally strong pace rather than reverse,
“Consequently, a moderation is more likely to result in slower export growth and greater cyclical volatility than a sustained contraction in the sector,” said the research house.
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