Malaysia records highest manufacturing growth in 8 months

Movement signals shift in more stable business conditions.

Manufacturing activity in Malaysia improved in February as the S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) climbed to 49.7 from January's 48.7.

Although it remained slightly below the neutral threshold of 50.0, this upward movement indicated a shift towards more stable business conditions, achieving the highest PMI reading since last August. This positive trend aligns with modest growth expectations reflected in the official GDP statistics for the first quarter of 2025 and continues the patterns observed in the latter part of the previous year.

Early in the year, the business landscape in Malaysia's manufacturing sector showed signs of stabilisation. February marked a turning point as companies experienced their first increase in new order intakes in four months, which positively impacted production volumes and led to a milder moderation compared to January.

New orders saw an increase, albeit marginal, for the first time since October. This growth, the most significant since May 2024, was attributed largely to an improvement in domestic demand, even though export orders declined for the third consecutive month, with particularly weak sales reported in the Asia-Pacific region. Nevertheless, the overall increase in new business hinted at a gradual recovery, despite the lingering caution in client confidence.

Despite the uptick in new orders, production levels among Malaysian manufacturers have been contracting for the ninth month in a row, although February saw the slowest rate of decline in six months. Staffing levels were also slightly reduced, but this trend remained unchanged from January. This focus on fulfilling existing workloads led to a decrease in backlogs for the seventh consecutive month, the most significant drop since March 2024.

Undeterred by the sluggish operating environment, many manufacturers reduced their inventory levels while making attempts to maintain efficiency. Purchasing activity, along with the stock of inputs and post-production inventories, also saw declines, albeit at softer rates than earlier. Some firms noted minor improvements in sourcing inputs, as delivery times lengthened only marginally.

However, the manufacturing sector faced challenges with higher raw material costs and unfavourable exchange rate fluctuations, resulting in a slight increase in input prices. This inflation rate remained modest and stable compared to the previous month. As a response, companies opted to lower their selling prices for the second consecutive month, although the decline was only slight.

Looking ahead, the manufacturers expressed optimism about sustaining new order growth over the next year, bolstering confidence regarding the outlook for production levels in the coming months. The sentiment reached its highest level in four months, suggesting a hopeful trajectory for the sector.

Usamah Bhatti, an economist at S&P Global Market Intelligence, commented on the February data, highlighting the encouraging trends in the manufacturing sector despite ongoing challenges. The resurgence in new work, though tentative, brought a sense of optimism. Bhatti underscored that whilst production and employment adjustments were made, they were marginal and suggested a cautious approach moving forward.

Overall, the data reflects a cautiously optimistic outlook for Malaysian manufacturers, as renewed order growth promises the potential for a more robust recovery in production levels in the months to come.