PETALING JAYA: The stock-building momentum among domestic manufacturers may not last, as business sentiment wanes due to the Middle East conflict prolonging the closure of the Strait of Hormuz.
Economists believe that the outlook for manufacturers have turned more challenging, despite the recently released S&P global manufacturing purchasing managers’ index (PMI) for Malaysia rising to a four-year high of 51.6 in April from 50.7 in March.
While indicating stronger factory activities, MBSB Research opines that “the outlook is turning more challenging”.
It noted that while current activity remains resilient, the recent rise in PMI readings in Malaysia and other economies reflects precautionary stockpiling ahead of a tougher production environment.
“Energy price shocks and elevated oil prices, driven by the West Asia conflict, are likely to worsen material shortages, disrupt supply chains, and keep production costs elevated, thereby constraining manufacturing momentum in the near term,” it said.
Kenanga Research said the near-term manufacturing sector outlook remains relatively firm but persistently high logistics, energy, and material costs, alongside worsening delivery delays, will remain key headwinds as second-round effects from prolonged Middle East tensions begin to surface.
The brokerage said growth should remain robust in the first half of 2026 (1H26), supported by a festive boost, resilient domestic demand, and stock-building activities.
“However, downside risks are rising in 2H26 as cost pressures and supply chain disruptions intensify.
“Nevertheless, we expect domestic resilience to cushion the impact. We therefore maintain our 2026 gross domestic product (GDP) forecast at 4.5% for now,” it added.
Kenanga Research noted that while new orders returned to growth, driven by bulk purchasing after moderating for two months, new export orders declined for a second straight month, reflecting softer external demand amid Middle East-related disruptions.
Malaysia’s PMI also showed that while purchasing activity rebounded as firms accelerated input buying to secure supplies, supply chain challenges persisted, with delivery times lengthening at the sharpest pace in nearly four years.
Pre-production stocks fell for a 10th straight month, albeit at a slower pace, while finished goods inventories increased for the first time in five months as firms built up stocks.
TA Securities said the average PMI for the first four months of the year stood at 50.5, slightly higher than the 50.1 in 1Q26, “suggesting manufacturing activity is broadly stable”.
It said in the near term, the latest indicators suggest Malaysia’s growth momentum remains broadly supportive of sustained GDP expansion, although the degree of optimism among domestic manufacturers, as captured by S&P data, was the weakest in eight months and remains historically subdued, with the war in the Middle East dampening forecasts.
The research house maintained its GDP forecast at 4.3% to 4.7% year-on-year growth for now, with the manufacturing sector’s performance in the coming months depending in part on how the Middle East situation unfolds.
It projects the manufacturing sector to grow 4.4% this year, supported by continued strength in electrical and electronics production driven by artificial intelligence-related demand, as well as steady consumer-oriented industries backed by resilient household spending.
