PETALING JAYA: Malaysia’s manufacturing sector enters the second half of the year on a firmer footing, with new orders growing at their fastest pace in eight months, raising hopes of a stronger contribution from the sector to third-quarter (3Q26) economic growth.
The Purchasing Managers’ Index (PMI), which is based on surveys of purchasing managers at manufacturers, held steady at 50.7 in July, unchanged from June, marking the fifth month in the past seven months that the index remained above the 50-point neutral mark.
Phillip Capital Research said this was the best performance since the country’s recovery from the Covid-19 pandemic.
Across Asean, manufacturing activity improved in July, with the regional PMI remaining above the 50-point neutral level for the 13th consecutive month.
The research firm noted that most Asean economies recorded higher PMI readings, with Malaysia the exception as its index remained unchanged. Indonesia returned to expansionary territory after slipping below the 50-point mark in June.
Phillip Capital Research said Malaysia’s strong presence in the global semiconductor supply chain meant the ongoing semiconductor demand upcycle was expected to continue supporting the manufacturing sector.
This comes as semiconductor-related demand continues to support manufacturing activity across the region, particularly in Japan, South Korea and Taiwan.
“Despite elevated geopolitical risks in the Middle East, the International Monetary Fund suggested that artificial intelligence-driven demand momentum could help offset some of the downside risks arising from geopolitical tensions.
“Nevertheless, the US government’s newly announced tariff policy may weigh on sentiment in non-electrical and electronics industries amid concerns over policy uncertainty,” the research firm said.
Meanwhile, Kenanga Research said the PMI reading above 50 points continues to signal expansion in manufacturing activity, supporting a positive contribution from the sector to 3Q26 gross domestic product (GDP) growth.
“Resilient new orders strengthen the case for an upward revision to our 3Q26 GDP growth forecast, which could push full-year 2026 GDP growth above 5%, from our current projection of 4.5% to 5.0% (2025: 5.2%),” it added.
On costs, the research firm said input cost inflation eased to its weakest pace in five months in July, although manufacturers continued to absorb part of the higher fuel, transportation, freight and raw material costs.
Output charges also fell to a five-month low, suggesting firms were absorbing some of the higher input costs rather than passing them fully on to customers.
However it said weaker business confidence and declining employment suggest manufacturers remain cautious amid persistent geopolitical risks.
An analyst said energy prices remain a key upside risk to inflation, with higher global oil prices and Malaysia’s net crude oil and condensate import position leaving domestic fuel costs exposed to external price movements.
The potential increase in unsubsidised fuel prices could also raise transportation and logistics costs, adding to inflationary pressures.
