KUALA LUMPUR, March 17 — Malaysia’s manufacturing sector stabilised in the second half of 2025 (2H 2025) following earlier weakness, with gradual improvement expected in the first half of 2026 (1H 2026), said the Federation of Malaysian Manufacturing (FMM).
Its President Jacob Lee Chor Kok said production and capacity utilisation rebounded modestly, indicating improving operating conditions, although demand remained uneven.
“Local and export sales improved but remained below the neutral threshold (100), indicating continued demand weakness,” he said during the FMM Business Conditions Survey for 2H 2025 media briefing today.
Cost pressures remain elevated despite moderating from earlier peaks, while capital investment edged slightly higher and employment remained broadly stable, reflecting cautious business sentiment.
On revenue, Lee noted that expectations remain moderately positive, with nearly half of the companies anticipating higher sales. However, gains are expected to be modest, indicating gradual rather than strong expansion.
“Profit outlook remains mixed as elevated operating costs continue to constrain margins, underscoring persistent cost pressures faced by manufacturers,” he said.
Lee added that rising input costs remain the most widely cited constraint, followed by intensifying competition and weak demand, while global trade developments and geopolitical risks continue to affect operating conditions.
The survey, now in its 28th edition, was conducted between January 12 and February 27, 2026, covering 631 respondents nationwide across 15 manufacturing sub-sectors.
Respondents were mainly from the food, beverages, and tobacco; electrical and electronics; and chemicals and chemical products segments, with the Klang Valley, Perak, and Penang identified as the top contributing regions.
Small and medium enterprises accounted for 70.7 per cent of respondents, with small firms forming the largest proportion.
According to the survey, the business activity index rebounded to 103 in 2H 2025 from 77 in the first half, signalling stabilisation, although expansion remained moderate.
Local and export sales improved to 94 and 93 from 69 and 77, respectively, but remained below the neutral threshold, while production and capacity utilisation both rose to 102 from 83 and 80, respectively.
Looking ahead, the index is projected at 104 in 1H 2026, with revenue expectations moderately positive but profit outlook remaining mixed amid persistent cost pressures.
Lee noted that the ongoing US-Iran conflict poses additional risks to the manufacturing sector, although the impact remains manageable at this stage.
“Malaysia faces moderate but manageable economic risks arising from the Iran conflict. Higher energy prices, freight costs and supply chain disruptions could increase production and logistics costs for manufacturers,” he said.
Manufacturers are already seeing increases in logistics, insurance, freight, and energy costs, although the overall impact on operations has yet to be significant.
Many firms are still receiving healthy orders, with some accelerating transactions to mitigate potential future cost increases.
“Many are rushing to place orders to shield themselves from higher costs. If they do not place orders now, prices may increase later. As a result, more transactions and sales have been concluded,” Lee said.
