Malaysian manufacturing contracts in February as job losses hit worst levels since pandemic

Its February PMI is a sharp reversal from January's 20-month high of 50.2.

Malaysia's manufacturing sector slid back into contraction in February, reversing the modest gains of the previous month.

This comes as weakening orders and sluggish market conditions prompted firms to slash their headcounts at the joint-fastest rate in the survey's history — a level of job shedding not seen since the depths of the Covid-19 pandemic in August 2020.

The S&P Global Malaysia Manufacturing Purchasing Managers' Index fell to 49.3 in February from a 20-month high of 50.2 in January, dipping below the 50-point threshold that separates expansion from contraction for the first time in four months.

The deterioration was the most pronounced since June 2025, and historical comparisons with GDP data suggest the reading is consistent with annual economic growth of just under 5%.

The headline decline was driven by a renewed softening in new orders, which pulled back after holding steady in January. Manufacturers attributed the drop to sluggish market conditions rather than any specific shock, though the backdrop of uncertainty in global trade was a recurring theme in anecdotal reports.

Export orders continued to grow for a second consecutive month, but even there, the pace of increase eased, limiting the relief that foreign demand might otherwise have provided.

With fewer orders arriving, output slowed at its sharpest pace in four months. Firms continued to top up their purchasing activity but only marginally, and both stocks of purchased inputs and stocks of finished goods were reduced — stretching runs of inventory drawdowns to eight months and three months respectively. Where firms were sourcing materials, they encountered worsening delivery times, with average supplier lead times lengthening at their most pronounced pace in 15 months. Port and container congestion, customs delays and overstretched suppliers were amongst the factors cited for the deterioration.

The most striking and alarming element of the February data, however, was the employment picture. The pace of job cuts matched the record set during August 2020, when Malaysia's factories were grappling with pandemic-era restrictions. Some firms put planned recruitment on hold, others made active reductions to their workforces, and a number also reported staff departures through resignations. The breadth of the pullback — across both decisions to stop hiring and decisions to let workers go — underlines how quickly sentiment shifted as order books softened.

The decline in staffing and the broader slowdown in activity contributed to a fresh build-up of unfinished work, with backlogs rising fractionally in February after four months of reduction. Although only a marginal upturn, it was the first time in 19 months that the backlog index climbed back above the neutral 50-point mark — a sign that even pared-back capacity is struggling to process what work remains.

On prices, the picture was mixed. Operating costs nudged back upwards in February following an unusually sharp decline in January — the first fall in input prices for 68 months — with manufacturers blaming higher raw material costs for the reversal.

Yet faced with anaemic demand, firms chose to absorb much of that pressure rather than pass it on, cutting their selling prices for the first time in four months in an effort to entice buyers back. The discounts were slight, but the direction of travel was telling: Malaysian manufacturers are competing on price at the same time as their own costs are rising.

Business confidence, whilst remaining positive in absolute terms, eased back from January's elevated levels. Firms expressed hope that demand conditions would improve and feed through to output growth in the months ahead — but that optimism now feels more cautious and conditional than the bullish mood at the turn of the year.

Maryam Baluch, Economist at S&P Global Market Intelligence, described it as a challenging month, noting that the record-equalling employment decline was one of the key takeaways from the survey.

She suggested that the combination of discounting and cost discipline reflected a deliberate strategy to revive sales, and that the marginal reduction in output prices could help companies secure new business in the coming months — provided demand responds.

Whether it does will determine whether February proves to be a blip or the beginning of a more uncomfortable stretch for one of South-East Asia's most export-dependent economies.