KUALA LUMPUR (March 17): Malaysia’s manufacturing sector stabilised in the second half of 2025 (2H2025) following an earlier slowdown, with gradual recovery anticipated for the first half of 2026 (1H2026), according to the Federation of Malaysian Manufacturing (FMM).
Key indicators in 2H2025 — including business activity, production and capacity utilisation — rebounded slightly above the neutral 100-point threshold, signalling gradual operational stabilisation. However, recovery was fragile across many industries as demand remained uneven, with both local and export sales staying below equilibrium levels. While cost pressures have eased from earlier peaks, they remain elevated and continued to squeeze profit margins.
“Overall, the sector appears to have entered a phase of stabilisation rather than a broad-based recovery, as firms maintain cautious operating strategies amid persistent cost pressures and uncertain demand conditions,” FMM president Jacob Lee Chor Kok said during a media briefing on the FMM Business Conditions Survey on Tuesday.
The business activity index rose to 103 in 2H2025 from 77 in the first half. The rebound was marked by significant jumps across core indices: local and export sales improved to 94 and 93 from 69 and 77, respectively, while production and capacity utilisation rose to 102 from 83 and 80.
Manufacturers are now expecting operating conditions to improve gradually, Lee said. Business activity, production and capacity utilisation are projected to climb further above the neutral threshold, signalling moderate expansion.
But demand remains a wildcard. Domestic sales are expected to remain uncertain, with domestic sales staying subdued, while export markets are projected to stabilise modestly. Cost pressures are also likely to remain elevated, continuing to weigh on profit margins and expansion plans.
“Overall, manufacturers remain cautiously optimistic about the near-term outlook, while maintaining prudent operating strategies amid persistent uncertainties,” Lee added.
The survey, conducted between Jan 12 and Feb 27, 2026, gathered data from 631 respondents across 15 manufacturing sub-sectors nationwide. Most respondents were from the food, beverages and tobacco, electrical and electronics, and chemicals and chemical products sectors, with the Klang Valley, Perak and Penang contributing the most feedback. Small and medium enterprises accounted for 70.7% of respondents.