TA Research noted that the latest PMI data indicated moderating economic growth.
PETALING JAYA: Malaysia’s manufacturing sector remained sluggish in January, as business conditions showed only marginal improvement amid ongoing external uncertainties.
The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) was at 48.7, a slight increase from December’s 48.6, indicating the eighth consecutive month of contraction in the sector.
Analysts remained cautiously optimistic about the year ahead, citing both risks and opportunities arising from shifting global trade dynamics.
TA Research noted that the latest PMI data indicated moderating economic growth, though still positive, with expectations of continued year-on-year improvements in official manufacturing production figures.
“The latest PMI data indicates that economic growth is moderating, though still positive and suggests continued year-on-year improvements in official manufacturing production figures.
“Based on the correlation between the PMI and official gross domestic product (GDP), the two are approximately 60% correlated.
“According to S&P Global, a headline PMI reading of 31.4 aligns with a zero annual GDP growth rate,” the research house said in its report yesterday.
Despite the weak start to the year, sentiment within Malaysia’s manufacturing sector remained upbeat, it added.
“Sentiment in the Malaysian manufacturing sector remained positive at the start of 2025, with expectations of improved demand fuelling optimism for output growth in the year ahead.
“However, business confidence softened, reaching its lowest level in seven months, reflecting lingering uncertainties in the external environment,” it said.
TA Research highlighted the potential ramifications of the latest trade developments involving the United States and its key trading partners.
“The potential impact of Trump’s trade war against key trading partners remains uncertain at this stage.
“Any slowdown in China’s trade flows could have indirect repercussions on Malaysia, given that China is one of Malaysia’s largest export destinations.”
Additionally, the shift in global supply chains, coupled with ongoing geopolitical tensions, may introduce further volatility in trade performance, said the research house.
“Against this backdrop, Malaysia’s ability to diversify its export markets and enhance trade resilience will be crucial in sustaining economic growth targets for the year.”
BIMB Research echoed similar concerns, pointing out that Malaysia’s PMI remained below the neutral threshold for the eighth straight month, reflecting subdued factory activity.
“PMI data for January 2025 showed subdued conditions in Malaysia’s manufacturing sector, with production declining at a faster pace amid weak new orders.
“The PMI rose slightly to 48.7 from 48.6 in December but remained below the neutral level for the eighth month, signalling ongoing softening.
“To stimulate sales, manufacturers lowered selling prices for the first time since June 2023, marking the largest cut in a decade,” it said.
While Malaysia’s manufacturing sector continued to struggle, regional peers fared better.
“In contrast, the broader Asean manufacturing sector showed resilience, with the January PMI at 50.4, slightly down from December’s 50.7, but continuing to maintain expansionary momentum from 2024.
“The growth in Indonesia and the Philippines countered the contractions in Malaysia, Thailand and Vietnam.
“Meanwhile, China’s official PMI contracted, while the Caixin PMI indicated continued manufacturing expansion for the fourth consecutive month in January, highlighting the importance of recovery in key global markets,” BIMB Research said.
MIDF Research pointed out that external headwinds could constrain Malaysia’s manufacturing recovery despite some positive domestic factors.
“The S&P Global Malaysia Manufacturing PMI edged up slightly to 48.7 in January 2025 but marked the eighth consecutive month of declining factory activity.
“Output fell for the eighth straight month, recording the sharpest drop in over a year.
“New orders continued to decline for the seventh month, with overseas demand weakening for the second month and falling at the steepest pace since October 2023.”
However, Malaysia’s domestic demand could help offset some of the external pressures.
MIDF Research said: “We remain positive about Malaysia’s manufacturing outlook, driven by growing domestic spending, supported by rising employment and household income, higher minimum wages, and government salary hikes.
“Furthermore, the global tech upcycle is expected to support the manufacturing sector.
“However, we opine the strength of external demand could be constrained by intensified global trade tensions following higher tariffs imposed by the United States and the retaliatory actions by other countries.”
Despite ongoing challenges, Malaysia’s manufacturing sector is expected to stabilise in 2025, supported by sustained electronics exports and increased foreign direct investment under the China+1 strategy.
Domestic policy support under Budget 2025 is anticipated to stimulate demand and provide a buffer against external headwinds.