PETALING JAYA: The manufacturing sector appears set for a cautious start to 2026, with indicators pointing to a moderation in growth amid rising global risks.
Quarter-to-date, the purchasing managers’ index (PMI) has averaged 49.8, unchanged from the fourth quarter of 2025 (4Q25), suggesting that manufacturing sector performance in real gross domestic product (GDP) terms is likely to remain within last quarter’s range, according to TA Research.
“According to S&P Global’s historical comparison, the latest PMI reading is consistent with annual GDP growth of just under 5%,” the research house said, while cautioning that reliance on the PMI alone may be misleading, as the broader economy is also shaped by services and other sectors.
TA Research noted that the deceleration trend aligns with its view that GDP is likely to contract on a quarter-on-quarter basis in 1Q26, moderating annual growth to 5.4% from 6.3% in 4Q25.
Global factors are compounding domestic challenges, it noted, pointing to events such as the escalations in the US trade war and direct military conflicts involving the United States, Israel and Iran that have heightened global uncertainty, unsettled financial markets, and increased downside risks to growth, trade and inflation dynamics.
“Recent developments in the global environment are increasingly unfavourable, with risks remaining firmly skewed to the downside, particularly from heightened external uncertainties,” TA Research highlighted.
The S&P Global Malaysia Manufacturing PMI fell to 49.3 in February from a 20-month high of 50.2 in January, dipping below the neutral 50-point threshold after three months of expansion.
One analyst told StarBiz that the February PMI drop suggested that the manufacturing sector is losing some of the early-year momentum, and companies are likely to adopt a more cautious approach in the months ahead.
“While output expectations remain positive, heightened global uncertainties mean that any recovery could be slower than anticipated, and firms may need to adjust production plans accordingly,” he said.
MBSB Research noted the PMI decline in February signalled a mild contraction in operating conditions, marking the first deterioration in four months.
“Employment plummeted at a series-record pace,” MBSB Research said, adding that softer purchasing activity and stretched supply chains contributed to delivery times hitting a 15-month high.
The report also highlighted mixed signals on prices and backlogs, it added.
While input costs rose modestly, reversing January’s dip, output prices fell for the first time in four months.
Backlog of work increased for the first time in five months, even as firms drew down stocks of purchases and finished goods.
Nevertheless, MBSB Research noted that manufacturers remain optimistic, betting on a demand recovery to drive output growth in the coming year.
Industrial production data showed resilience at the end of 2025, with growth accelerating to 4.8% year-on-year in December from 4.3% in November, supported by a surge in exports.
Yet, the weaker February PMI reading pointed to a potential moderation in growth in the near term, underscoring the fragility of momentum in Malaysia’s manufacturing sector, MBSB Research said.
TA Research said that, for now, the 2026 GDP growth forecast remains unchanged at 4.3% to 4.7%, with close monitoring of manufacturing performance crucial, given its status as Malaysia’s second-largest GDP contributor after services.
