FMM president Tan Sri Soh Thian Lai.
KUALA LUMPUR: Manufacturers have been bracing for challenging times in the first half of 2025 (1H25), according to the business conditions survey conducted by the Federation of Malaysian Manufacturing (FMM).
The survey which drew 627 respondents nationwide revealed that the manufacturing sector was facing rising costs and dampened demand due to global uncertainties compared with gains recorded in 2024.
The general business activity index dropped from 98 in 2H24 to 77 in 1H25, with local and export sales indices retreating to 69 and 77, respectively, suggesting that businesses are scaling back expectations, with expansion sentiment fading.
Cost pressures persisted as the production cost index rose to 158 from 144, reflecting sustained but moderating input price increases.
Production volume contracted with the index dropping from 99 in 2H24 to 83 in 1H25, as well as underutilised capacity due to cautious operations amid softer demand.
Manufacturers had shifted from cautious optimism to a more defensive stance, focusing on consolidation and operational continuity while managing fragile demand and elevated costs.
Key business challenges recorded in the survey were upward pressure on input costs, expansion of the sales and service tax (SST), changes in global trade policies, electricity tariff restructuring and weak demand.
Moreover, the recent electricity tariff hike had further driven up costs with high-voltage users bearing the brunt, prompting many to turn to renewable energy, particularly solar-based solutions.
FMM president Tan Sri Soh Thian Lai told a press conference: “Doing business is not that easy anymore due to so many geopolitical changes and trade shifts, and there are many uncertainties happening in Malaysia and also throughout the world.
“This is the reason that FMM is pushing the government to provide more market access and free trade agreements or FTAs so that we can be among the top 25 trading nations in the world.”
Furthermore, he noted that respondents had sought greater clarity, predictability and targeted measures from policymakers including the reintroduction of the goods and services tax, as the SST did not only raise direct costs but added layers of compliance and operational strain.
FMM called on the government to assist manufacturing industries specifically under the expanded SST scope, as 35% reported struggling with determining the correct classifications and tax codes for products.
The expansion has also increased cost from newly taxed services, particularly the inclusion of construction services at 6% and rental or leasing services at 8% from July 1, 2025.
“We have had enough. We hope the government will give our industries breathing space so that we can focus on our activities and let the money flow into the economic system,” he noted.
Moving forward, the manufacturing sector is expected to face more challenges in 2H25, with confidence weakening and businesses shifting away from expansion, prioritising efficiency, consolidation and risk management.
Nearly half of the respondents anticipated lower profits including a sizeable number expecting steep contractions of more than 25%, as costs and demand pressures weigh heavily on the sector.
Overall, the survey pointed to a tougher operating landscape as manufacturers prepare for slimmer margins, softer demand and elevated uncertainty.
