PETALING JAYA: Manufacturing conditions weakened in the first half of financial year 2026 (1H26) following a period of stabilisation in the preceding six months, according to the Federation of Malaysian Manufacturing (FMM).
According to the 29th edition of its Business Conditions Survey for 1H26, softer domestic and export demand weighed on business activity, production and capacity utilisation, while significantly higher production costs added to operating pressures.
“Nevertheless, capital investment and employment remained relatively resilient, indicating that manufacturers maintained a cautious approach amid weaker demand and rising costs,” it said in a statement.
The FMM survey was conducted from July 15 to Aug 14, 2026 and received 670 responses nationwide, of which 72% were small and medium enterprises based on full-time employment.
It tracks actual performance in 1H26 and expectations for 2H26 through the FMM Business Conditions Index, where a reading above the growth-neutral threshold of 100 indicates improvement and a reading below 100 indicates deterioration.
FMM said general business activity declined to 90 from 103 in 2H25, while local and export sales fell to 82 and 85 from 94 and 93, respectively.
Production volume and capacity utilisation each declined to 94 from 102.
In contrast, the production cost index rose sharply to 163 from 146, with 69% of respondents reporting higher costs.
“Capital investment increased to 106 from 103, while employment improved marginally to the neutral level of 100 from 98.”
Going forward, FMM said manufacturers have become more cautious about the outlook for 2H26.
“Expectations for business activity, domestic and export sales, production and capacity utilisation have been revised downwards, while cost pressures are expected to remain elevated.
“Investment and employment are, nevertheless, projected to remain relatively resilient, pointing to a subdued recovery constrained by weak demand and continued cost pressures.”
FMM said the expected business activity index stands at 93, with local and export sales projected at 88 and 92, respectively.
“Production volume is expected at 99 and capacity utilisation at 98, both slightly below the neutral threshold.
“The production cost index is projected at 156, with 63% of respondents anticipating further cost increases.
“Capital investment and employment are expected to remain in positive territory at 107 and 104, respectively.”
FMM said revenue expectations are cautiously positive, with 45% of respondents anticipating an increase, including 15% expecting growth of 1% to 5% and 14% expecting growth of 6% to 10%.
“A further 28% expect revenue to remain unchanged, while 27% anticipate a decline, including 8% expecting revenue to fall by more than 25%. The results point to modest and uneven revenue growth rather than a broad-based acceleration.”
