A Slight Dip, But Optimism Persists
Malaysia’s manufacturing sector took a minor step back in September, with the seasonally adjusted Manufacturing Purchasing Managers’ Index (PMI) easing to 49.8, down from 49.9 in August, according to S&P Global.
While the headline figure remained just below the 50.0 threshold—indicating a slight contraction—the broader sentiment among local manufacturers painted a more balanced picture. New orders continued to expand for the second straight month, hinting that recovery momentum is still on the horizon, even as output slowed modestly.
“Manufacturers were also relieved to see operating costs ease, as raw material price inflation fell to its lowest in five months,” S&P Global noted.
New Orders Up, But Production Slows
September marked a turning point for Malaysian factories, with back-to-back new business gains seen for the first time since June 2024. However, growth in new orders was described as “modest,” as manufacturers grappled with a slowdown in output.
S&P Global’s findings suggest that demand conditions are stabilising, especially from domestic buyers. However, external demand particularly from China and key ASEAN trade partners remains uneven due to global supply chain adjustments and fluctuating export prices.
Economist Usamah Bhatti from S&P Global Market Intelligence said that while the improvement in new orders was encouraging, production volumes took a slight hit.
“Two straight months of new order growth hadn’t been seen in over a year. This development, however, was accompanied by a renewed fall in production volumes. Nevertheless, the data still point to a slight pickup in GDP growth in the third quarter,” Bhatti explained.
Inflation Pressures Ease, Costs Cool Down
One bright spot for manufacturers came in the form of lower input costs. According to the report, raw material price inflation eased to its lowest level in five months, providing relief for many small and medium enterprises (SMEs) that had been squeezed by rising costs since early 2024.
This cooling in cost pressures could improve profit margins in the months ahead, especially if the trend continues into the year-end period.
- Raw material prices: Eased for the fifth consecutive month
- Inflation: Lowest level since April 2025
- Exchange rate: Remained stable despite global volatility
GDP Outlook: A Modest Pickup in Q3
With factory activity broadly stable and demand slowly improving, analysts believe Malaysia’s third-quarter GDP could see a slight improvement from Q2 2025.
The manufacturing sector—which contributes roughly 23% of Malaysia’s GDP—continues to play a pivotal role in driving the country’s post-pandemic recovery.
S&P Global added that the better year-on-year performance in manufacturing output would likely support broader economic resilience, even as global growth remains sluggish.
“The PMI data suggests Malaysia’s Q3 GDP growth could edge higher compared to Q2, buoyed by improved business sentiment and easing cost pressures,” S&P Global noted.
Business Confidence on the Rise
Despite the slower output, business confidence strengthened in September. Firms surveyed expressed optimism about future demand, export opportunities, and new product launches over the next 12 months.
This confidence aligns with the government’s pro-manufacturing policies, including investments in automation, green technology, and supply chain diversification.
Key sectors such as electronics, automotive parts, and consumer goods are expected to see renewed interest from both domestic and international investors.
What It Means for Malaysia’s Economy
While the latest PMI figure of 49.8 may seem underwhelming, it represents a near-equilibrium point—a sign that the sector is stabilising rather than contracting sharply.
In the context of regional peers, Malaysia’s performance remains competitive:
- Vietnam’s PMI stood at 50.2 (expansion)
- Thailand’s PMI recorded 49.5 (contraction)
- Indonesia’s PMI held at 52.4 (steady growth)
This places Malaysia on the cusp of recovery, especially if export orders rebound in the coming months.
