Malaysia’s manufacturing sector slipped into contraction in September, with the S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) falling to 49.9 from 50.2 in August. The decline ended three consecutive months of improving operating conditions.
The manufacturing sector returned to contraction territory in Sep-26, with the S&P Global Malaysia Manufacturing PMI easing to 49.9 from 50.2 in Aug-26, ending three consecutive months of expansion. The softer reading was mainly due to a decline in new orders, which fell for the first time in four months and at the sharpest pace since Jun-25, reflecting weaker underlying demand conditions. Manufacturers also reduced output for a second consecutive month, while purchasing activity remained subdued amid sufficient inventories and softer order inflows.
Despite the weaker demand environment, the survey highlighted several encouraging developments. Employment increased for a second straight month, with the pace of hiring reaching its fastest since Apr-26 as firms expanded both full-time and contract staffing. Export orders also returned to marginal growth, while input cost inflation eased for a fifth consecutive month to its lowest level since Feb-26. However, business confidence weakened to a five-month low amid concerns over external uncertainties, including geopolitical tensions in the Middle East and weather-related disruptions linked to El Niño.
While the return of the PMI below the 50-point threshold suggests manufacturing conditions softened in Sep-26, the broader signal indicates moderation rather than a significant downturn. Continued employment growth, marginal expansion in export orders and easing cost pressures indicate that manufacturers are maintaining capacity despite near-term demand headwinds.
Looking ahead, MBSB said it expects Malaysia’s manufacturing sector to remain supported by resilient external demand, particularly from the electronics and technology supply chain, although momentum may stay soft amid softer new orders and ongoing geopolitical uncertainties. The house believes easing inflationary pressures and continued investment activity should provide support, but a sustained recovery in orders will be key to strengthening production growth and business confidence going forward.
