Malaysia’s manufacturing sector maintained its expansion momentum in July, with the Manufacturing Purchasing Managers’ Index (PMI) holding steady at 50.7, signalling that factory activity entered the second half of 2026 on a stable footing despite ongoing geopolitical uncertainty and external economic headwinds.
In a research note, Kenanga Research said the July reading remained above the neutral 50-point threshold, indicating continued expansion in manufacturing activity, underpinned by resilient domestic demand and improving external orders.
The research house said new orders rose at the fastest pace in eight months, supported by repeat business, stronger customer demand, new product launches and fresh tenders.
Production also continued to expand during the month, although the pace remained broadly unchanged from June, suggesting manufacturers have yet to fully ramp up output to match the stronger inflow of new orders.
Purchasing activity recorded modest growth, reflecting cautious efforts by manufacturers to replenish inventories amid improving business conditions.
Meanwhile, stocks of purchases remained largely unchanged, indicating firms continued to adopt prudent inventory management strategies.
Kenanga noted that inflationary pressures eased further during July.
Input cost inflation slowed to its weakest pace in five months, although manufacturers continued to face higher fuel, freight, transportation and raw material costs.
However, producers absorbed part of these higher costs rather than passing them fully to customers, with output price inflation also easing to a five-month low.
The moderation in cost pressures is expected to provide some relief to manufacturers navigating a challenging global operating environment.
Despite stronger demand, manufacturers remained cautious about the outlook.
Business confidence slipped to a three-month low amid concerns over market conditions and persistent geopolitical tensions.
Employment also declined during the month as companies reduced headcount through resignations, layoffs and workforce rationalisation measures aimed at containing operating costs.
Kenanga said the softer confidence and weaker hiring suggest manufacturers remain wary of external uncertainties despite improving order books.
Malaysia’s manufacturing performance remained broadly in line with regional peers.
Taiwan’s manufacturing PMI eased marginally to 55.1 in July from 55.2 in June but remained firmly in expansion territory, supported by the strongest growth in new orders in five years.
Japan also recorded a strong reading of 54.5, underpinned by the fastest increase in factory output since February 2014 and the strongest rise in new orders since January 2022, driven largely by robust semiconductor and artificial intelligence-related demand.
Kenanga expects Malaysia’s manufacturing sector to remain in expansion over the coming months, supported by resilient domestic consumption and improving export demand.
The sustained improvement in new orders is expected to translate into stronger production activity during the third quarter, although business sentiment may continue to be tempered by geopolitical risks.
Given that the PMI has remained above the 50-point expansion threshold, the research house believes manufacturing will continue contributing positively to Malaysia’s economic growth in the third quarter.
The stronger manufacturing outlook has also strengthened the case for an upward revision to Kenanga’s third-quarter GDP growth forecast, potentially lifting Malaysia’s full-year economic growth above 5.0%, compared with its current projection of 4.5% to 5.0% for 2026.
