KUALA LUMPUR, March 18 (Xinhua) -- Malaysia's manufacturing sector showed signs of stabilization in the second half of 2025, though firms remain cautious amid uneven demand and persistent cost pressures, according to the latest survey by the Federation of Malaysian Manufacturing (FMM).

FMM said in a statement on Tuesday that its business conditions survey found that key operational indicators improved modestly after a weaker first half of 2025.

The Business Conditions Index rose to 103 from 77 previously, while production volume and capacity utilisation also edged up to 102, signalling a gradual return to operational stability.

However, demand recovery remained fragile, with local sales and export sales staying below the neutral 100 mark at 94 and 93, respectively. Production costs remained elevated at 146, underscoring continued pressure on margins.

Looking ahead, manufacturers expect a gradual improvement in the first half of 2026, supported by stronger projections for business activity (104), production and capacity utilization (106), as well as capital investment (110) and employment (106).

Despite the cautiously optimistic outlook, firms flagged lingering uncertainties, particularly around demand conditions and input costs, with production costs expected to remain high.

The survey also highlighted emerging risks from U.S. reciprocal tariffs. Some firms cited margin compression, reduced orders and supply chain disruptions, pointing to growing concerns over Malaysia's export competitiveness in the longer term.