KUALA LUMPUR, Sept. 5 (Xinhua) -- The Federation of Malaysian Manufacturing (FMM) cautioned that Malaysia's manufacturing sector is poised for a downturn, which could drag down economic growth amid internal and external challenges.

FMM said in a recent statement that, on the back of cost pressures, lower profit margins and reduced demand, there are valid reasons to expect a weakening in the performance of the manufacturing sector, translating into weaker impetus to growth.

FMM has projected Malaysia's growth to moderate to 3.5 percent to 3.6 percent in the second half, reflecting domestic and external challenges.

According to the statement, small and medium-sized enterprises (SMEs) will face higher business costs from subsidy rationalization, expanded sales and services tax, utility tariffs and rising wages.

It noted that manufacturing is already slowing, from 4.1 percent growth in the first quarter to 3.7 percent in the second quarter.

While Malaysia secured a lower 19 percent U.S. tariff, FMM noted that the direction of U.S. trade policy remains unclear.

With the slowing global growth prospects, it opined that the promise of robust external demand for Malaysian export-oriented manufacturers, particularly the SME sector, is slightly muted.

"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 noted that steady domestic demand, moderating inflation, a robust labor market and sound policy execution can provide the resilience needed to weather uncertainty and sustain growth in a fragile global recovery. ■