Kuala lumpur: The manufacturing sector’s second half of 2025 (2H 2025) is projected to be softer due to persistent cost pressures and weaker demand expectations, according to the Federation of Malaysian Manufacturers (FMM).
According to BERNAMA News Agency, FMM President Tan Sri Soh Thian Lai stated that the expansion of the sales and services tax (SST) effective July 1, 2025, along with the imposition of United States (US) tariffs and higher electricity tariffs for the industrial sector, could impact the industry. Firms are shifting from caution to consolidation, with industry players being more defensive and prioritizing efficiency and risk management amid geopolitical tensions and global trade shifts due to the US tariffs.
Soh discussed the findings from the FMM Business Conditions Survey for 1H 2025, conducted on July 2, 2025, with 627 respondents nationwide. He noted that the SST expansion will lead to increased costs and compliance challenges, significantly affecting manufacturers. Nearly half of the respondents reported substantial impacts, such as higher operating costs and additional compliance burdens. Issues like product classification, mixed supplies treatment, and unclaimed input exemptions risk eroding efficiency and competitiveness, particularly for small and medium enterprises (SMEs).
Rising costs from newly taxed services, difficulties in securing exemptions, and broader compliance challenges, including system upgrades, customs rulings, and transaction treatment, were highlighted as key concerns. Manufacturers are calling for targeted government action, with a focus on expanding exemptions for essential inputs, clearer classification guidance, stronger transitional support, and advisory assistance.
Soh also mentioned that the ongoing China-US trade war remains unresolved and could impact local industry players, especially if the US imposes higher taxes on Chinese goods, forcing China’s producers to seek alternative markets. ASEAN, including Malaysia, could face increased competition from cheap imports, particularly affecting local SMEs.
Meanwhile, FMM reported that Malaysia’s 1H 2025 manufacturing sector performance had weakened. Business activities and sales and production indices declined from earlier 2024 gains, affected by rising costs and fragile demand. Despite these challenges, employment remained broadly stable, with most firms retaining their workforce. Capital investment continued moderately, though the appetite for expansion had weakened.
Cost pressures persisted, with the production cost index rising to 158 from 144, indicating sustained but moderating input price increases. About two-thirds of the respondents reported higher costs, although more firms than before cited stable conditions. Overall, manufacturers in 1H 2025 shifted from cautious optimism to a more defensive stance, focusing on consolidation and operational continuity while managing fragile demand and elevated costs.