Kuala Lumpur, 05 March 2025 – The 26th edition of the FMM Business Conditions 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. 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
The survey, which drew 524 respondents nationwide, was conducted from December 18, 2024 to
February 17, 2025 and tracked business confidence via the FMM Business Conditions Index
(FMM BCI) covering the actual performance in 2H2024 and outlook for 1H2025
BUSINESS CONDITIONS IMPROVE BUT EXPANSION REMAINS CAUTIOUS – 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 decline in those reporting lower
sales suggests that businesses are moving away from pessimism, but overall confidence in local
sales has not yet reached strong levels of optimism. 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. Meanwhile, the proportion exporting less has been declining consistently, suggesting
improved external market conditions. 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. While cost pressures remain a challenge, the improving current index for investment
suggests that businesses are willing to allocate capital for expansion, albeit cautiously.
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 across all three periods
(2H2023, 1H2024 and 2H2024), just below the optimism threshold of 100 indicating neutral
sentiment, with respondents preferring to maintain existing workforce levels rather than expand
aggressively
OUTLOOK FOR 1H2025: A BALANCING ACT BETWEEN STABILITY AND GROWTH –
Moving forward, manufacturers are shifting towards stability, favouring steady growth over rapid
expansion. Business activity expectations remain positive, with fewer anticipating declines and
more expecting stable conditions. Local and export sales show cautious optimism, while production
and capacity utilisation reflect resource optimisation over aggressive growth. Rising production
costs remain a challenge, with sustained cost pressures. Investment and employment outlooks
are stable, with measured expansion and a focus on efficiency. Despite economic uncertainties,
businesses prioritise sustainability and resilience
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. Overall, businesses
are shifting from uncertainty to stability, favouring steady activity over sharp changes
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.
2025 REVENUE OUTLOOK: CAUTIOUS OPTIMISM, MEASURED GROWTH – Manufacturers
remain cautiously optimistic about revenue prospects in 2025 (vs 2024), with 56% expecting
growth, 24% anticipating stability, and almost 19% foreseeing declines. Most respondents predict
moderate revenue increases (1%-10%), while only 8% expect strong growth (>25%), reflecting
measured confidence rather than aggressive expansion. Meanwhile, nearly a quarter of
businesses expect no change, suggesting a strategic focus on stability. Overall, the results indicate
a balanced market sentiment, where businesses are prioritising resilience over rapid growth.
2025 PROFIT OUTLOOK: BALANCED PERFORMANCE – Manufacturers display a balanced
outlook on profit growth, with 47% expecting an increase, 24% foreseeing stability and 30%
anticipating a decline. Most respondents predicting growth expect modest gains (1%-10%), while
only 5% foresee strong profit growth exceeding 25%, reflecting cautious optimism rather than
aggressive expansion. Meanwhile, nearly a quarter expect no change, emphasising a focus on
maintaining profitability rather than significant improvement
BUSINESS CONFIDENCE: EXPECTED CHANGES IN 2025 COMPARED TO 2024 – Overall,
while internal company conditions are expected to improve, broader industry, economic and
consumer trends remain largely stable, with some concerns about economic and industry-wide
slowdowns. Businesses appear cautiously optimistic, focusing on efficiency and adaptation rather
than expecting major shifts or disruptions.
Manufacturers expect moderate improvements within their own companies, with 43% anticipating
positive changes, 14% predict deterioration, while 42% expect no change, reflecting a balanced
yet cautiously optimistic outlook. For industry conditions, stability dominates, with 41% expecting
no change. While 34% anticipate improvements, the outlook is mitigated by 24% foreseeing
deterioration, suggesting that while some industries may experience recovery, others may still face
challenges
The global economic outlook remains uncertain, with 38% expecting no change, 28% predicting
improvement, and 35% anticipating deterioration. Similarly, economic conditions in Malaysia are
projected to be stable, with 42% expecting no change, 29% predicting improvement, and 29%
expecting a decline, indicating a split sentiment on domestic economic growth
New technology deployment sees 45% of respondents expecting stability, while 43% anticipate
moderate or significant improvements, reflecting ongoing but steady digital adoption. Consumer
spending habits are also expected to remain stable, with 45% predicting no change, 28% expecting
improvements, and 27% foreseeing deterioration, suggesting that purchasing behaviour will be
influenced by broader economic factors
KEY CHALLENGES TO BUSINESS OPERATIONS AND GROWTH IN 2025 – In 2025,
manufacturers face intensified cost pressures and slightly heightened competition, with 55% citing
rising input costs (up from 49% in 2024) and 48% noting increased competition versus 47%
previously. Additionally, 2025 introduces new issues such as regulatory burdens, labour shortages
and sustainability compliance, suggesting that although some traditional challenges have
moderated, the overall operating environment remains complex and demands a strategic focus on
cost efficiency and market differentiation.
KEY BUSINESS OPPORTUNITIES IN 2025 – Businesses see expanding product portfolios
(55%) as the biggest opportunity in 2025, indicating a focus on diversification and innovation to
drive growth. Exporting to new countries (40%) is another major avenue, reflecting efforts to tap
into international markets. Digital transformation (23%), including cloud computing and AI adoption,
is seen as a key enabler of efficiency and competitiveness. Additionally, new international markets
(21%) and specialising in niche products (19%) present further opportunities for businesses looking
to differentiate themselves in competitive markets.
IMPACT OF BUDGET 2025 WAGE ADJUSTMENTS ON BUSINESS COSTS – A majority of
respondents (91%) expect the increase in minimum wage and mandatory EPF contribution to
impact their operational expenses, while 9% believe there will be no significant effect. Among those
anticipating higher costs, 48% expect a moderate increase (5% to 10%), while 26% foresee a
smaller rise (<5%) and another 26% anticipate a more substantial cost surge (>10%).
ADOPTION OF GREEN MANUFACTURING PRACTICES
‒ Majority of businesses are moderately prepared (51%) to adopt green manufacturing practices,
while 28% are minimally prepared, indicating that most companies have taken initial steps but
may still face challenges in full implementation. Only 16% of respondents are fully prepared.
‒ 68% of respondents have some level of integration of environmental sustainability into their
business strategies while 6% are fully integrated. 26% have not yet considered it.
‒ Regarding specific green manufacturing goals, 32% of companies have already set targets,
while 42% are in the process of doing so. However, 26% have no defined sustainability targets,
indicating that a significant number of businesses are still evaluating their approach.
‒ Only 13% of respondent have already implemented sustainable green practices while 52%
have a plan to achieve adoption in the next 5 years. 35% have no specific timelines.
‒ Waste reduction & recycling is most widely adopted followed by energy efficiency improvement.
More can be done to support water conservation and green supply chain management.
‒ Majority (52%) of respondents allocate less than 5% of CAPEX for green manufacturing
adoption. Only 12% of businesses have allocated between 10% and 20%, and a small 4%
have invested more than 20% of their capital into green manufacturing Stronger incentives and
increased financial support is needed to encourage higher investment levels.
‒ Cost savings (52% of respondents), corporate sustainability goals (50%) and regulatory
compliance (50%) are leading motivators for adopting green manufacturing practices
‒ High implementation cost and lack of technical expertise are the most significant barriers to
adopting green manufacturing practices
‒ Adopting cleaner energy sources and greening supply chain processes are the most
challenging operations cited by respondents
‒ Financial incentives and grants are the most critical forms of support to overcome barriers to
adoption.
SUPPLY CHAIN CHALLENGES
‒ Manufacturers source their raw materials from a mix of domestic, regional and global suppliers,
with no single dominant supply base. However, Malaysia remains an important raw material
hub with businesses diversifying sourcing to ASEAN and beyond to mitigate risks and ensure
supply chain stability. The limited reliance on global sources may reflect efforts to reduce
exposure to international supply chain disruptions and geopolitical risks.
‒ The most pressing challenge for businesses remains increased logistics costs (85%
respondents), which impact profitability and supply chain efficiency. Delivery delays (45%)
further compound this issue, affecting production timelines and customer fulfilment. Raw
material shortages (42%) remain a concern, limiting production capacity and increasing
procurement difficulties. Geopolitical disruptions (35%) add uncertainty, influencing trade
policies, supply chain risks and currency fluctuations
Supply chain challenges are spread across multiple levels, reflecting the interconnected nature
of modern logistics. 22% of respondents cited localised challenges within Malaysia, while 13%
pointed to regional (ASEAN) issues. A larger share, 26%, attributed challenges to global supply
chains, highlighting geopolitical and trade-related challenges. The most significant group, 39%,
reported a combination of local, regional and global factors, emphasising the complexity of
supply chain risks.
‒ Geopolitical tensions and disruptions have significantly impacted supply chain operations. 50%
of respondents reported experiencing increased costs due to trade policies or tariffs,
highlighting the financial strain imposed by geopolitical instability. Additionally, 48% noted
disruptions in supply routes and logistics, suggesting that transportation and distribution
networks have been affected by global uncertainties.
‒ Companies are actively adapting their supply chain strategies to mitigate challenges, with a
strong emphasis on diversification, risk management and technological advancements. 64%
opt to diversify supplier base to minimise exposure to geopolitical and logistical risks while 62%
are strengthening inventory and risk management practices for greater resilience.
‒ Businesses are looking for policy-driven solutions, financial support and infrastructure
improvements to build more resilient and efficient supply chains.
SMART MANUFACTURING
‒ The adoption of factory automation, smart manufacturing and Industry 4.0 is mixed, with 44%
of companies implementing these technologies to enhance efficiency and competitiveness.
However, 56% have not yet adopted them, likely due to high costs, technical challenges or
return on investment (ROI) concerns. The transition to smart manufacturing is ongoing,
requiring more incentives, training and infrastructure to drive broader adoption.
‒ Of those implementing, system integration is most widely adopted by 63% of respondents,
followed by Cloud Computing and Autonomous Robots (45% each) and IoT (43%)
‒ Primary drivers for Industry 4.0 adoption include increased operational efficiency and
productivity, focus on reducing operating costs and better data analytics and insights.
‒ Awareness of financing options for factory automation, smart manufacturing, and Industry 4.0
adoption is relatively low. While 47% of respondents are aware of available financing options,
53% are not, suggesting a gap in outreach or accessibility of information. Of those aware, only
19% have applied for Government incentives or loans.
‒ 31% of respondents use AI software or productivity tools in their business operations, while a
majority (69%) do not, suggesting that AI-driven and digital productivity solutions are still in the
early stages of adoption, possibly due to cost concerns, lack of expertise or limited awareness
of available technologies.
‒ Majority (68%) have access to 5G of which 62% actively use 5G for business operations. Of
the 38% not using 5G in operations, poor signal at operation site is cited as most significant
challenge by 30% of respondents.
