Kuala lumpur: 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), according to the Federation of Malaysian Manufacturing (FMM).
According to BERNAMA News Agency, President Jacob Lee Chor Kok reported that production and capacity utilisation had rebounded modestly, signalling improving operating conditions, though demand remained uneven. At the FMM Business Conditions Survey for 2H 2025 media briefing, Lee stated that both local and export sales had improved but remained below the neutral threshold of 100, indicating ongoing demand weakness.
Lee highlighted that cost pressures continue to be elevated despite moderating from earlier peaks, while capital investment edged slightly higher, and employment remained broadly stable, reflecting cautious business sentiment. On revenue, he noted expectations remain moderately positive, with nearly half of the companies anticipating higher sales, but gains are expected to be modest, indicating gradual rather than strong expansion.
The profit outlook remains mixed as elevated operating costs continue to constrain margins, underscoring persistent cost pressures faced by manufacturers. Rising input costs are the most widely cited constraint, followed by intensifying competition and weak demand, while global trade developments and geopolitical risks continue to influence 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 percent 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, signaling 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 acknowledged the ongoing US-Iran conflict as a potential risk to the manufacturing sector, though the impact remains manageable at this stage. Malaysia faces moderate but manageable economic risks arising from the Iran conflict, with higher energy prices, freight costs, and supply chain disruptions potentially increasing production and logistics costs for manufacturers. Manufacturers are already observing increases in logistics, insurance, freight, and energy costs, although the overall impact on operations has yet to become significant.
Many firms are still receiving healthy orders, with some accelerating transactions to mitigate potential future cost increases. Lee noted that many are rushing to place orders to shield themselves from higher costs, as prices may increase later. As a result, more transactions and sales have been concluded.