Manufacturing Sector Stabilising, Says FMM

Malaysia’s manufacturing sector showed signs of stabilisation in the second half of 2025 following earlier weakness. NSTP/ROHANIS SHUKRI

Malaysia's manufacturing sector showed signs of stabilisation in the second half of 2025 following earlier weakness, the Federation of Malaysian Manufacturers (FMM) said.

President Jacob Lee Chor Kok said the sector is entering a stabilisation phase rather than a broad-based recovery.

"While key indicators are improving, demand remains fragile and cost pressures persist, keeping manufacturers cautious in their outlook," he said at a briefing on the FMM Business Conditions Survey.

The survey showed the general business activity index rose to 103 from 77 in the first half, signalling improving operating conditions.

Production volume and capacity utilisation also recovered to 102, while capital investment edged up to 103, pointing to a gradual restoration of operational stability.

Employment remained broadly stable at 98, suggesting firms are maintaining workforce levels amid cautious conditions.

However, the recovery remained uneven, with local and export sales still below the neutral level at 94 and 93, respectively.

Production costs also remained elevated at 146, despite some moderation, continuing to weigh on overall performance.

Overall, key indicators such as business activity, production and capacity utilisation have moved slightly above the neutral threshold, indicating gradual stabilisation. However, demand remains uneven across industries, while elevated cost pressures continue to compress margins.

Looking ahead, manufacturers are entering the first half of 2026 (1H26) with cautious optimism, with recovery expected to strengthen gradually.

The business activity index is projected to rise to 104, reflecting further improvement in operating conditions.

"Manufacturers are seeing better conditions, but lingering demand uncertainty and high costs mean recovery will be measured rather than rapid," Lee said.

Forward-looking indicators for production and capacity utilisation are expected to remain above neutral levels, signalling moderate expansion.

However, demand conditions remain uncertain, with domestic sales expected to stay subdued and export markets likely to see only modest stabilisation.

Cost pressures are also expected to remain elevated, continuing to weigh on margins and business expansion plans.

Manufacturers expect moderate revenue growth in 1H26, but the profit outlook remains cautious due to persistent cost pressures and uneven demand.

"Profit expectations are more subdued than revenue, underscoring the continued impact of cost pressures on margins.

"About 41 per cent of respondents expect profits to increase, while 26 per cent foresee no change and 33 per cent anticipate declines," he said.

He added that key challenges in 1H26 will centre on rising costs, intensifying competition and weak demand.

Cost pressures were cited by 56 per cent of respondents, followed by competition at 53 per cent and weak demand at 46 per cent.

Other concerns include difficulty attracting new customers (45 per cent) and changes in global trade policies (43 per cent).

"These responses highlight the combined impact of margin pressure and uncertain market conditions on manufacturers.

"In contrast, issues such as data security, RON95 subsidy rationalisation, financing access and foreign skilled labour were cited by fewer respondents.

"Overall, the sector is stabilising but still facing an uneven recovery, with firms likely to remain cautious in their operating and investment decisions," he said.

Source: www.thestar.com.my