KUALA LUMPUR (May 5): Malaysia’s manufacturing outlook is turning more challenging in the coming months due to rising costs, supply chain disruptions and weakening external demand after the sector experienced short-lived resilience in April, according to analysts.
The positive in the manufacturing purchasing managers index (PMI) reading in April mainly suggested that economic activities were driven by precautionary stockpiling rather than sustained end-demand strength.
This comes as firms and customers built up safety inventories in response to geopolitical tensions stemming from the Middle East conflict.
“Persistently high logistics, energy and material costs, alongside worsening delivery delays, will remain key headwinds as second-round effects from prolonged Middle East tensions begin to surface,” Kenanga Research said.
The input cost inflation already surged to a 45-month high in April, driven by higher energy and raw material prices. This led to a record increase in output prices which indicated that cost pressures are being passed on to customers.
The downside risks are now seen rising in the second half of the year as the cost pressure and supply chain disruption intensify, despite the overall impact is expected to be cushioned by domestic demand, Kenanga added in a note on Tuesday.
Malaysia’s economy already grew at a softer-than-expected pace of 5.3% year-on-year in the first quarter of 2026, as activities in key manufacturing and services sectors decelerated as the US-Israel launched their large-scale military strikes against Iran at the end of February.
Meanwhile its central bank still expects the economy to expand between 4% and 5% in 2026, thanks to resilient domestic demand and ongoing investment momentum.
BIMB Securities meanwhile highlighted that business confidence among manufacturers has weakened to an eight-month low, remaining below historical norms amid lingering concerns over global uncertainties.
“[However,] Malaysia’s diversified and consumption-led economic structure should provide a degree of resilience, with industrial production and goods exports projected to expand by 3.4% and 3.5% respectively in 2026,” the house said.
In April, Malaysia’s manufacturing sector posted a four-year high of 51.6, up from 50.7 in March. The improvement was driven by a sharp acceleration in output growth, the strongest since December 2021.
New orders also rebounded after two months of softening on the back of bulk purchases, although export demand weakened for a second straight month.