The Federation of Malaysian Manufacturing (FMM) is pleased to publish the findings of the 27th biannual survey of business conditions in the manufacturing sector for the first half of 2025 (1H2025). The findings were successfully released to the media via a press conference on September 18, 2025. We are pleased to enclose a copy of the survey findings for your reference and record.
The survey revealed that the manufacturing sector’s performance in 1H2025 weakened as business activity, sales and production indices slipped from the earlier gains of 2024, weighed down by rising costs and fragile demand. Employment levels were largely stable, while investment activity eased slightly, reflecting continuity in operations but reduced appetite for expansion:
- General business activity: Index dropped sharply from 98 in 2H2024 to 77 in 1H2025, reflecting a shift from cautious optimism to renewed contraction. Only 17% of respondents reported higher activity (down from 27%), while those reporting lower activity rose to 40% (from 30%). Although 42% saw stability, expansion sentiment has weakened significantly.
- Local sales: Index fell from 88 to 69, with fewer reporting higher sales (13%) and more citing declines (44%), highlighting weak domestic demand.
- Exports: Index dropped from 92 to 77; higher sales slipped to 17% and lower sales rose to 40%, reflecting global demand headwinds.
- Production volume: Index eased from 99 to 83, as higher production fell to 20% and lower production increased to 37%.
- Capacity utilisation: Index declined from 96 to 80, with fewer expansions (18%) and more declines (38%), showing manufacturers’ cautious stance.
- Production costs: Index rose from 144 to 158, with 63% citing higher costs; although pressures persist, cost increases show some signs of moderation.
- Capital investment: Index slipped from 108 to 102; 21% increased investment while 59% held steady, pointing to continuity but weaker expansion appetite.
- Employment: Index steady at 97, with most (71%) unchanged in workforce, 13% hiring, and 16% cutting, indicating a neutral but cautious labour market.
Looking ahead, the outlook for 2H2025 turns more challenging, with all major forward-looking indices falling further. Persistent cost pressures and softer demand expectations suggest that firms are shifting from cautious consolidation to a more defensive stance, prioritising efficiency and risk management over growth:
- General business activity: Index fell to 89 from 101, with only 23% expecting improvement; more (34%) foresee declines, reflecting a more cautious, defensive outlook.
- Local sales: Index dropped to 83 from 94; just 19% expect higher sales, while pessimism grew as 36% anticipate declines.
- Export sales: Index slipped to 84 from 97; only 21% expect growth, while 37% anticipate declines, showing rising concerns over global demand.
- Production: Index fell to 91 from 109, with fewer expecting higher output (26%) and more anticipating declines (34%).
- Capacity utilisation: Index declined to 90 from 106; 24% foresee higher utilisation, while 34% expect declines, pointing to weaker operating conditions.
- Costs: Index remained very high at 163 (from 167), with 69% expecting higher costs; inflationary pressures remain the biggest challenge.
- Capital investment: Index dipped to 108 from 116; 28% plan higher investment, but more (20%) foresee cuts, showing caution in expansion.
- Employment: Index slipped to 99 from 106; hiring expectations eased (18% vs. 22%), while 19% expect reductions, indicating a cautious labour outlook.
Topical issues covered in the survey revealed the following key findings:
- The outlook for revenue is fragmented, with 39% forecasting growth (mainly modest at 1–10%), 27% expecting stability, and 34% anticipating declines, including 12% bracing for sharp contractions.
- For profits, sentiment tilts negative: only 32% expect gains (largely marginal at 1–5%), 21% foresee no change, while nearly half (47%) project declines, with 15% anticipating steep contractions.
- Top 5 challenges to business operations and growth in 2H2025: rising input costs, expansion of the Sales and Service Tax (SST), changes in global trade policies, electricity tariff restructuring and weak demand.
- Top 5 opportunities to business operations and growth in 2H2025: expansion of product portfolio, exporting to new countries, opportunities in new international markets, activity to rebound if costs and interest rates decline and leveraging on digital technologies, cloud and artificial intelligence (AI).
- Industry 4.0 Adoption:
- Only 32% of firms have adopted Industry 4.0, with focus on System Integration (66%), IoT (47%) and Cloud Computing (39%).
- US Tariffs:
- 37% face significant / major impacts with 13% report losses above 30%.
- Almost half are diversifying exports while others are shifting supply chains and automating.
- Tariffs remain a persistent cost and competitiveness challenge.
- SST Expansion:
- Nearly half face significant impacts from the expansion; 11% report major disruptions.
- 36% produce mixed goods, increasing compliance complexity; 17% unclear on classification.
- Among key challenges faced are higher service costs (59%); exemption issues (35%); and Customs tariffs classification challenges (35%).
- Respondents call for reintroduction of GST and urge exemptions, clarity and better guidance / support from government.
- New Electricity Tariff Revisions on Business Costs:
- The electricity tariff revisions have pushed up business costs for most users, with HV categories most affected (up to 72%), while LV General shows relatively more stability.
- By load factor, firms with mid-to-high usage (0.4–1.0) largely face cost increases, while very low load factors (<0.2) see mixed effects.
- Most reported cost hikes fall within 3–15%, especially 3–5% (26%) and 8–10% (16%), while reductions, where present, were modest.
- Energy Efficiency: Adoption is strongest in efficient lighting (46%), compressed air optimisation (29%), and power factor correction (23%). Future intent is high for advanced measures like high-efficiency motors (46%), compressed air optimisation (45%), and power factor correction (44%).
- Renewable Energy: Current adoption is modest—Net Energy Metering (22%), Self-Consumption (14%), and Large-Scale Solar (12%)—but future intent is strong, with over 40% of respondents planning to adopt solar and grid-linked schemes.
- Artificial Intelligence:
- Respondents show modest familiarity: 12% familiar, 55% somewhat, 33% not familiar.
- Adoption still low, with only 26% having implemented AI.
- Top uses include customer service / chatbots (40%), product development (36%), inventory (35%), and production optimisation (33%).
- Benefits: Biggest gains: productivity (60%) and faster decision-making (57%).
FMM would like to thank all members who took the time to respond and give their valuable feedback. The next survey would be in December 2025 / January 2026. FMM members’ support and continued participation would ensure that the Business Conditions Index (BCI) is representative and an accurate monitor of business condition trends in the manufacturing sector.
Enquiries: Puan Hema Thiruchelvam / Puan Nurhafizah Ngatiran / Puan Kamsiah A Rahim, Business Environment Division at Tel: 03-6286 7200 or e-mail: [email protected]
Making Malaysian Industries Globally Competitive
Datuk Dr Yeoh Oon Tean
Chief Executive Officer