PETALING JAYA: The manufacturing sector is likely to remain on a cautious footing in the near term, as lingering uncertainties over global trade policy and ongoing input cost pressures continue to weigh on production momentum.
While the seasonally adjusted S&P Global Malaysia manufacturing purchasing managers’ index (PMI) edged up slightly to 48.8 in May from 48.6 in the previous month, the improvement was modest and below the neutral 50-threshold – indicating that overall activity remained in contraction territory.
According to TA Research, the sector’s outlook has been shaped by a range of factors, including persistent weakness in global demand, particularly from advanced economies.
“In the absence of a meaningful recovery in global demand – particularly from advanced economies – Malaysia’s industrial output and trade performance may continue to face external headwinds, especially as the temporary lift from front-loaded orders begins to fade,” the research house said in its report.
TA Research noted that the manufacturing gross domestic product (GDP) grew by 4.1% in the first quarter of 2025, and second-quarter growth was expected to remain within a similar range.
However, the average PMI reading for the January to May period stood at 48.9, slightly below the 49 recorded in the first four months, suggesting continued but modest pressure in the sector.
The upcoming June PMI reading was highlighted as a key indicator.
“The upcoming June PMI reading will be pivotal, as any notable shift – either upward or downward – could influence the trajectory of official indicators,” TA Research explained.
Sentiment in the manufacturing sector remained broadly positive in May, with firms expressing expectations of improved demand conditions over the next 12 months. Nonetheless, overall confidence slipped to its lowest level since June 2021.
“Expectations of improved demand conditions underpinned projections for output growth over the next 12 months.
“However, overall confidence slipped to its lowest level since June 2021, reflecting heightened uncertainty over US trade policy and ongoing shortages of skilled labour, which continue to weigh on near-term outlook,” the research house added.
It also pointed to external factors contributing to the sector’s subdued outlook.
The recent imposition of US tariffs had exacerbated cost pressures, leading to a rise in input price inflation – the highest level in six months in May.
Firms frequently attributed this inflationary pressure to adverse exchange rate movements and tariffs, particularly on imported inputs.
Despite the input cost surge, manufacturers reported holding output prices steady in May, effectively ending a four-month sequence of price reductions.
“Production levels remained subdued in the latest survey period, with the seasonally adjusted output index continuing to register below the neutral 50-threshold,” TA Research said, noting that output had now been scaled back consistently for 12 consecutive months.
Employment levels stabilised midway through the second quarter of 2025, effectively ending a seven-month streak of workforce reductions.
However, subdued new order inflows allowed firms to continue clearing outstanding workloads, leading to a marginal decline in backlogs.
“Manufacturers also highlighted that subdued business conditions were compounded by a steady rise in operating expenses,” TA Research said.
It maintained that the manufacturing sector would remain cautious in the near term, pending clearer signals from global demand and trade policy developments.
The sector’s resilience, it suggested, would depend on how effectively firms manage cost pressures and navigate external uncertainties.
