FMM In The News: THE STAR, KUALA LUMPUR, March 5, 2025 - Malaysian businesses are keeping a cautiously optimistic outlook, with manufacturers still favouring steady growth over rapid expansion in the first half of financial year 2025 (1H25), according to a survey carried out by the Federation of Malaysian Manufacturers (FMM).
The 26th edition of the FMM Business Conditions Survey also revealed that the manufacturing sector had demonstrated steady momentum in 2H24, with business conditions, sales and production strengthening amid high costs.
Looking ahead to 1H25, FMM president Tan Sri Soh Thian Lai commented that manufacturers are expected to prioritise efficiency over aggressive growth, focusing on stability amid global economic uncertainties.
“While employment remains stable and investment sentiment is steady, rising costs and external risks may temper business expansion.
“The sector is moving toward gradual recovery, but caution remains a defining factor in strategic planning,” he said.
The survey, which drew 524 respondents nationwide, was conducted from Dec 18, 2024 to Feb 17, 2025 and tracked business confidence via the FMM Business Conditions Index covering the actual performance in 2H24 and outlook for 1H25.
Soh pointed out that there was a rebound in the local sales index number from 81 in 1H24 to 88 in 2H24, with more businesses reporting steady sales, although he suggested that sentiment among businesses have not exactly been overly optimistic.
“In contrast, export sales demonstrated a stronger and more consistent recovery.
“The percentage of respondents reporting higher sales saw a modest but steady increase, while those who experienced steady sales grew more significantly, indicating that exporters expect stability in global demand.
“The current export sales index saw a notable improvement from 85 in 1H24 to 92 in 2H24, showing a stronger confidence boost compared to local sales,” he observed.
At the same time, he said production volumes saw a steady increase in responses from 25% in 1H24 to 29% in 2H24, with the production volume index jumping from 91 in 1H24 to 99 in 2H24, suggesting a near return to optimism.
Similarly, capacity utilisation followed an upward trend, with 26% reporting higher capacities in 2H24, up from 24% and 23% in 1H24 and 2H23, respectively.
The current index for capacity utilisation showed a gradual improvement from 91 in 2H23 to 96 in 2H24, indicating a strengthening but cautious recovery.
While cost challenges remain, Soh said the percentage of businesses experiencing higher production costs declined from 62% in 1H24 to 50% in 2H24, indicating some easing of cost pressures.
“The current index for production cost declined from 155 to 144, but it remains well above 100, signalling that cost pressures are still present, though at a slower pace,” he said.
Meanwhile, Soh said the newly enacted trade tariffs imposed on China by US President Donald Trump could prove to be a double-edged sword for countries like Malaysia, before noting that so far, steel and aluminium from the latter to be exported to the United States are now subjected to a tariff of 25%.
On the other hand, he is of the opinion that the “China + 1” policy will remain as a “plus point” to Malaysia, despite mentioning that it would mean Malaysia would need to compete with other Asean countries to reap its benefits.
“To ensure that China + 1 shapes up to be a win-win situation, we would like to see Chinese companies engaging in more joint ventures and partnerships with Malaysian companies, as this would create a multiplier effect,” he added.
Of interest, he believes that while the impending RON95 subsidy rationalisation may not produce a significant short-term impact on the manufacturing sector, it could lead to severe longer term effects if its implementation is not carried out in a gradual fashion.
Soh explained that this is because in the immediate context, businesses could always opt to pass on any increased costs from the subsidy rationalisation to consumers.
“But for how long can they do this?” he asked.
He suggested for the government to explore a staggered rationalisation method, ideally over a period of two years where the subsidies for fuel prices can be reduced every six months within that time frame, to enable consumers and businesses to plan their financial management.
Soh commented that cost of living and cost of doing business have escalated, before pointing out that the private sector has contributed to about 68%, or approximately RM221bil, of the government’s revenue of RM322.1bil in 2024.
Separately, the FMM president encouraged businesses to move towards supplier diversification and digital transformation to mitigate the effects of the current geopolitical climate, while calling for more free trade agreements to be enacted between Malaysia and various regions globally, especially with the European Union.