KUALA LUMPUR: The Federation of Malaysian Manufacturers expects higher costs and global uncertainties will weigh on growth in the second half of this year, particularly for small and medium enterprises (SMEs).
FMM said in a statement that SMEs would be hit hardest by rising business costs stemming from subsidy rationalisation, an expanded sales and service tax (SST), and higher utility tariffs and wage pressures.
It noted that manufacturing growth had slowed from 4.1 per cent in the first quarter to 3.7 per cent in the second quarter.
Profit margins remain under strain as demand softens, raising risks of weaker sector performance.
“We are of the view that the later part of 2025 will bring about challenges for the Malaysian economy, particularly for the SME sector, with lower growth in the later part of the year, thus entailing a whole-year growth rate that is closer to the lower end of the official forecast,” FMM said.
However, it said steady domestic demand, moderating inflation, a resilient labour market and sound policy execution could cushion downside risks.
FMM expects gross domestic product growth to moderate to 3.5-3.6 per cent in the second half, dragged down by domestic cost pressures and external headwinds.
Malaysia’s GDP expanded 4.4 per cent in the second quarter, driven by strong services (+5.1 per cent), construction (+12.1 per cent) and private consumption, underpinned by rising wages and a stronger labour market.
Inflation eased to 1.3 per cent in the quarter, while the ringgit strengthened 5.1 per cent to RM4.22 to the US dollar by mid-August, supported by fiscal reforms and investor inflows.
Externally, FMM flagged lingering risks despite Malaysia securing a lower 19 per cent US tariff. Global growth is slowing amid trade frictions, weaker United States and China outlooks, and geopolitical tensions pushing up energy and transport costs.
The International Monetary Fund projects global growth this year at three per cent, down from last year’s 3.3 per cent and below the pre-pandemic average, while the World Bank is more pessimistic at 2.3 per cent — the weakest since 2008.
Advanced economies are set to drive the slowdown, with growth forecasts of 1.4 per cent for the US, 1.1 per cent for the European Union and 0.7 per cent for Japan. China remains more resilient, but its outlook has been trimmed to 4.5 per cent.
“Global headwinds add to the challenge. Slowing US growth with a 30 to 40 per cent probability of recession, China‘s forecast slipping to 4.2 per cent, and global conflicts driving oil and transport costs higher.
“With the growth prospects of the US and China taken together, the promise of robust external demand for Malaysian export-oriented manufacturers, particularly the SME sector, is slightly muted.”
FMM said domestic demand, supported by higher minimum wages, targeted cash transfers and long-term national projects, will be crucial to cushion the downturn.
It urged policymakers to ensure careful implementation of reforms and fiscal measures to sustain investor confidence and economic resilience.
© New Straits Times Press (M) Bhd
