Malaysia's manufacturing sector deteriorated slightly in May, retreating from a four-year high in April, as lower demand weighed on new orders and output.
The latest seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) dipped into contraction territory at 49.9, down from an expansionary 51.6 in April.
A reading above 50 denotes sector expansion, while a figure below 50 signifies contraction.
The link between gross domestic product data and the PMI could indicate softer growth midway through the second quarter, S&P Global Market Intelligence economist Maryam Baluch said.
The contraction also comes as 100 small furniture factories in Malaysia's Muar manufacturing hub closed in recent months, Thailand's The Nation reported Tuesday.
The lower headline index in May signaled weakness in underlying demand, while firms that increased prices registered lower sales, leading to more subdued new orders, S&P said.
Production across the country also weakened compared with the previous two months, S&P said.
"Sluggish demand conditions in Malaysia's manufacturing sector led to a moderation in operating conditions, as output and new orders eased following growth observed in April," Baluch said.
Purchasing activity among manufacturers increased for the second straight month as firms looked to build buffer stocks amid uncertainty in raw material prices due to the war in the Middle East.
Input costs grew due to higher raw material and fuel prices, S&P said.
Firms were hesitant about passing on costs to consumers, but price increases were driven by increased cost pressures, according to S&P.
While producers were more confident about output expansion over the next year, positive sentiment was still historically subdued, S&P said.