PETALING JAYA: The manufacturing sector could remain in the contractionary zone in the near-term, dragged down by weakening global demand and a slump in business confidence.
In April, the Purchasing Managers’ Index (PMI), which is a key economic indicator used to gauge the health of the sector, slipped further to 48.6 from 48.8 in March.
This is the weakest PMI reading this year, reflecting persistent contraction, according to BIMB Securities Research.
The PMI averaged 49.0 from January to April 2025, marginally lower than 2024’s average of 49.4.
For context, a PMI below 50 indicates a contraction in the manufacturing sector, and the lower the number, the sharper the contraction.
“Although cost pressures eased slightly and selling prices fell, business sentiment remained subdued.
“Optimism dropped to its lowest level since July 2023, weighed down by growing concerns over a slowing global economy and renewed US tariff actions,” the research house said in a report yesterday.
Noteworthy is the cautious mood was mirrored across much of Asean where most economies reported a downturn in manufacturing activity too.
According to BIMB Securities research, recent tariff hikes and volatile trade policies are pressuring production costs and prompting firms to re-evaluate supply strategies.
These dynamics will continue weighing on Malaysia’s export-oriented sectors in the near term.
“Nevertheless, strategic shifts in global trade are opening new opportunities.
“Malaysia stands to benefit from the China+1 diversification trend, with rising interest from multinationals seeking alternative manufacturing hubs – especially in electronics and semiconductors.
“Efforts to address US trade concerns are also underway, with Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Aziz engaging US officials to prevent a proposed 24% tariff on Malaysian exports scheduled for July,” the research house added.
Meanwhile, Kenanga Research said domestic demand is expected to support growth, noting that despite the slowdown in the PMI, manufacturing conditions remain relatively stable.
Looking ahead, it expected manufacturing growth to ease slightly, with a 2025 forecast of 3.7% – lower than the Finance Ministry’s projection of 4.5%.
On the overall economy, Kenanga Research is maintaining its 2025 gross domestic product growth forecast at 4.8% (2024: 5.1%) despite the heightened uncertainty on the impact of US tariffs on the global trade.
“Although concerns about a potential export slowdown to the United States remained if high tariffs resumed after the 90-day pause, we are optimistic that Malaysia could reach a deal with the United States.
“If the United States and China continue to decouple, Malaysia could benefit given its strategic location and diversified export products,” the research house added.
