Economics professor Dr Yeah Kim Leng said the marginal dip in September’s PMI signified the fear of a sharp slowdown in economic activity has somewhat eased.
PETALING JAYA: Economists are split on their outlook over the latest Purchasing Manager’s Index (PMI) data from September and what it represents going forward, after it nudged down fractionally to 49.8 from 49.9 in August.
For context, the PMI is a widely watched economic indicator that provides an early snapshot of business activity, based on surveys of purchasing managers in sectors such as manufacturing and services, who are asked about new orders, production, employment, supplier deliveries, and inventories.
As purchasing managers are close to real-time supply chains, their responses therefore give a good sense of whether demand is rising or falling before official gross domestic product (GDP) or employment data are released.
This makes the PMI a leading indicator of the business cycle.
A PMI above 50 indicates expansion compared with the previous month, while a PMI of below 50 indicates contraction.
Economics professor at Sunway University Dr Yeah Kim Leng said he thinks that the marginal dip in September’s PMI in fact signified that the fear of a sharp slowdown in economic activity, due to continuing global uncertainty and the negative impact of tariffs, has somewhat eased.
He pointed out that this is further supported by the rise in PMI in the third quarter (3Q25) to 49.8 compared with the 48.9 of 2Q25, suggesting continuing growth momentum given that the PMI has strong predictability for conditions for two to three quarters ahead.
Economist and associate professor at the Universiti Kuala Lumpur Business School Dr Mohd Harridon Mohamed Suffian said, while September’s PMI may have indicated a contraction in the manufacturing sector, the index should be read in tandem with the Coincident Index (CI), which in totality showed a healthy value that indicates the nation is experiencing positive growth.
“Hence, even though the PMI had dipped by 0.1 from August, this value does not pose a significant economic danger to the country as projections indicated that the PMI would perhaps increase in totality, in 4Q25 due to propitious economic policies,” he told StarBiz.
The CI provides a measure of a country’s overall current economic performance, as it includes five components comprising the Industrial Production Index (IPI), real gross imports, real salaries and manufacturing wages, total employment, and real sales.
The latest data from July showed that Malaysia’s CI rose 1.2% year-on-year (y-o-y) to 129.70 points in July.
On the other hand, Asean economist at HSBC, Yun Liu while acknowledging that August’s slight improvement in PMI indicates a stabilisation in Malaysia’s manufacturing sector, with renewed growth in production and new orders, said “overall sentiment had weakened, reflecting a clouded trade outlook ahead”.
At the same time, commenting on the softer external demand, Yeah told StarBiz that Asian nations, including Malaysia, are intensifying efforts to promote faster and stronger economic integration through regional trade agreements, particularly the Regional Comprehensive Economic Partnership as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, on top of bilateral trade deals with other regions such as the European Union, the Middle East, and Africa.
“Trade expansion with countries other than the United States will increase Malaysia’s international trade while helping to offset any potential decline in trade with America due to effects from the tariffs,” he predicted.
To achieve sustained manufacturing growth trajectory, and move the PMI needle past the important 50-point mark, Yeah feels that greater public-private coordination, promotion and customised support are needed to attract the targeted high growth, high value manufacturing industries.
Mohd Harridon, meanwhile, said he believes that the economic policies of the country should be favourable to the manufacturing sector, elaborating that such policies should focus on supply chains to be concentrated within the region in order to deflate transportation costs.
“Another aspect that should be adhered to is the protectionism of the manufacturing sector; its implementation should be actuated in tranches and upon selected areas in the manufacturing sector in order not to disrupt the push towards globalisation and free trade market.
“There should also be a shift in the economic policies where manufacturing firms that have the propensity towards digital and technological transformation are given more financial leverage, in terms of soft loans and grants and tax exemptions, for them to optimise their manufacturing operational values,” he stressed.
Concurrently, HSBC’s Liu said climbing up the value chain is necessary for the manufacturing sector to sustain long-term growth, and this is what Malaysia has long been aiming for.
“For example, in Malaysia’s electrical and electronic (E&E) sector, moving from back-end to front-end requires a holistic approach from both the government and industry.
“Furthermore, attracting quality foreign investments and training the necessary engineers are also among some key policy considerations,” she said.
Moreover, reflecting Yeah’s point, Liu said it is essential for Malaysia to diversify from the US market, and seek more trade opportunities with emerging regions with enormous consumer potential.
MBSB Research, in a brief note to clients yesterday, is expecting a weaker PMI reading moving forward, reflecting softer production on the back of slower export growth recorded in August of 1.9% y-o-y, compared with June’s 6.5%, with the tariff adjustments taking effect.
“The slightly lower PMI reading for September also suggests a potential slowdown in IPI, indicating softer momentum ahead,” it said.
TA Research, meanwhile, cited S&P Global’s report on the latest data that suggested Malaysia’s GDP growth in 3Q25 ticked up modestly from the previous quarter, pointing to a sustained y-o-y improvement in official manufacturing production figures.
The research house said this indicates that the economy is gradually gaining momentum despite lingering external headwinds, before adding: “For 3Q25, the PMI averaged 49.8, improving from 48.9 in 2Q25.
