The Federation of Malaysian Manufacturers (FMM) is pleased to publish the findings of the 26th biannual survey of business conditions in the manufacturing sector for the second half of 2024 (2H2024). The findings were successfully released to the media via a press conference today, March 5, 2025. We are pleased to enclose a copy of the survey findings for your reference and record.
The survey revealed that Malaysian manufacturing sector in 2H2024 demonstrated steady momentum, with business conditions, sales and production strengthening amid high costs. Sustained capital investment and steady employment levels underscore a strategic, long-term confidence, as manufacturers navigate an evolving economic landscape with a balanced approach to growth and risk management:
- Businesses are cautiously optimistic, with stability taking precedence over strong expansion. The proportion of respondents reporting higher activity rose slightly, with a slight increase in respondents from 1H2024 (26%) to 2H2024 (27%), while the business activity index increased from 93 to 98 points, indicating a slow but steady recovery.
- Local sales experienced a period of stabilisation, with more businesses reporting steady sales, while the proportion reporting higher sales remained subdued. The current index for local sales rebounded slightly to 88 in 2H2024.
- 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 1H2024 to 92 in 2H2024, showing a stronger confidence boost compared to local sales.
- Production volume saw a steady increase in responses from 25% in 1H2024 to 29% in 2H2024. The current index for production volume remained flat at 91 from 2H2023 to 1H2024 before jumping to 99 in 2H2024, suggesting a near return to optimism.
- Similarly, capacity utilisation followed an upward trend, with 26% reporting higher capacities in 2H2024, up from 24% and 23% in 1H2024 and 2H2023, respectively. The current index for capacity utilisation showed a gradual improvement from 91 (2H2023) to 96 (2H2024), indicating a strengthening but cautious recovery.
- While cost challenges remain, the percentage of businesses experiencing higher production costs declined from 62% in 1H2024 to 50% in 2H2024, 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.
- Capital investment is on a steady upward trajectory, with the proportion of respondents reporting higher investment rising from 22% in 2H2023 to 24% in 2H2024. The index improved from 103 in 2H2023 to 108 in 2H2024, indicating growing confidence in capital expansion, albeit at a measured pace.
- The manufacturing employment landscape remains largely unchanged, with 15% of respondents consistently reporting higher employment activity since 2H2023. Meanwhile, majority of respondents (69%) are maintaining their workforce levels in 2H2024, indicating a stable but cautious labour market. The current employment index has remained at 98 just below the optimism threshold of 100 indicating neutral sentiment, with respondents preferring to maintain existing workforce levels rather than expand aggressively
Looking ahead to 1H2025, 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.
- Manufacturers' expectations for higher business activity eased, as shown by the expected business activity index which moderated to 101 from 106 previously. 26% of the respondents expect business conditions to improve soon, down from 29% previously. Notwithstanding the moderating optimism, confidence remains, with the index staying above 100.
- Manufacturers' expectations for local and export sales in the latest survey reflect cautious stability. Local sales optimism remains limited, with only 20% of the respondents expecting higher sales, while responses for stable sales expectations grew to 55%, signalling a shift toward predictability over expansion. Export sales softened slightly, with respondents anticipating higher expectations shrinking from 26% to 23%, likely due to global trade uncertainties. However, 51% of respondents anticipate stable exports. Overall, businesses are prioritising stability over rapid expansion, with pessimism fading across both markets.
- Manufacturers' expectations for higher production volume fell from a proportion of 32% previously to 30% in the latest survey. Meanwhile, stable production expectations grew to 48% (favourable responses), reflecting greater predictability.
- Capacity utilisation followed a similar trend, with 29% of respondents with higher expectations previously settling at 27% in the latest survey. Those expecting stable utilisation remained at 51%, suggesting respondents are optimising resources rather than expanding aggressively.
- Manufacturers anticipate rising production costs, with 72% expecting higher costs in 1H2025, up from 66% previously.
- Meanwhile, capital investment expectations remain stable, with respondents projecting higher investment rising slightly from 30% to 32%. Respondents with stable investment expectations fell to 52%. The expected capital investment index remained at 116, signalling cautious confidence in expansion
- The employment outlook remains stable, as the proportion of respondents with higher hiring expectations recovered to 22% from 18% previously. The majority (62%) expect no workforce changes. The expected employment index remained above 100, indicating moderate optimism without aggressive expansion.
Topical issues covered in the survey revealed the following key findings:
- Outlook for revenue growth remains cautiously optimistic while profit growth is more balanced with a mix of optimism and caution. 56% respondents expect revenue growth, with most anticipating increases of 1%-10%. 47% respondents expect profit growth, with most predicting increases of 1%-10%.
- Versus 2024, there is a decline in pessimism in 2025 marking a subtle recovery in confidence. There continues to be a measured approach that favours efficiency and gradual adaptation over rapid transformation.
- Top 5 challenges to business operations and growth in 2025: rising input costs, increasing competition, weak demand, attracting new customers and ringgit depreciation. New challenges in 2025 include increased regulatory burden, access to domestic skilled labour, higher tax obligations and sustainability compliance.
- Top 6 opportunities to business operations and growth in 2025: expansion of product portfolio, exporting to new countries, leveraging on digital technologies, cloud and AI, opportunities in new international markets, narrowing product portfolios and value-chain opportunities associated with ESG targets.
- 91% of respondents expect increase in minimum wage and mandatory wage costs to impact their operational expenses, with 48% expecting moderate increase (5%-10%)
- Green Manufacturing Adoption:
- 51% respondents are moderately prepared for adoption of green manufacturing practices, with only 16% reporting being well or fully prepared
- 68% respondents have sustainability partially integrated into their businesses, 32% have set targets, and 26% plan to achieve adoption within 1-2 years
- 71% respondents adopt practice of waste reduction and recycling
- 52% respondents allocate less than 5% of their capital expenditure toward green manufacturing initiatives
- Cost savings, corporate sustainability goals and regulatory compliance are the lead motivators for adopting green manufacturing practices
- Majority indicate high implementation costs as the most significant barrier to adopting green manufacturing practices
- Energy usage and greening supply chain are the most difficult areas to green
- Financial incentives or grants is the most critical form of support needed to assist adoption
- There is no single dominant supply base as sourcing is from a mix of domestic, regional and global suppliers to mitigate risks and ensure supply chain stability. 35% respondents source more than 70% of their materials from Malaysia; 36% respondents source 31%-70% of their materials regionally – ASEAN, China, Japan, Korea; and 54% respondents source up to 30% of their materials globally (Outside ASEAN)
- Increased logistic costs is the most pressing challenge followed by delays in delivery and material shortages
- Supply chain challenges are spread across multiple levels. 26% respondents attributed disruptions to global supply chains.
- Majority cited increased cost due to trade policies/sanctions as the main impact of geopolitical tensions on supply chain operations followed by disruptions in supply routes or logistics
- Shifting towards supplier diversification, proactive risk mitigation and digital transformation are the main strategic responses to build more resilient and adaptive supply chains
- Majority suggest that the government facilitate regional trade agreements to reduce barriers
- Implementation of Factory Automation / Smart Manufacturing / Industry 4.0 (Ind 4.0)
- 44% of companies implement factory automation/smart manufacturing/Ind 4.0 in their manufacturing process of which 63% implement System Integration.
- Primary driver of Ind 4.0 technology is increased operational efficiency and productivity
- 53% respondents are not aware of available financing options for factory automation/smart manufacturing/Ind 4.0. Of those aware, only 19% have applied for such financing.
- 31% respondents use AI software or productivity tools in their business operations.
- 68% respondents have access to 5G, with 62% actively using 5G for their business operations
- 30% respondents cite poor 5G signal/coverage as reason for not using 5G in their business operations, and 49% report equipment connectivity issues and weak indoor coverage
FMM would like to thank all members who took the time to respond and give their valuable feedback. The next survey would be in June 2025. 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:
Business_Environment@fmm.org.my
Making Malaysian Industries Globally Competitive
Datuk Dr Yeoh Oon Tean
Chief Executive Officer