ASEAN factories face closures and layoffs as war-driven cost shock spreads

Factories across Southeast Asia are beginning to close and cut jobs as war-driven increases in raw-material, energy and shipping costs squeeze manufacturers, exposing a widening divide between booming electronics exporters and struggling industries such as furniture, footwear, plastics and local manufacturing.

While strong production in electronics has helped keep headline economic indicators looking relatively resilient, economists and industry leaders warn that deeper stress is spreading through small and medium-sized enterprises across the region.

Manufacturing sentiment weakens despite positive PMI

Manufacturing confidence across ASEAN remained in positive territory in April, according to S&P Global’s Purchasing Managers’ Index, but the figure fell to its lowest level in nine months and marked a sharp slowdown from the period before the Iran war.

Ferdaos Rosli, chief economist at AmBank in Kuala Lumpur, said Malaysia’s April trade figures appeared stronger than expected, with exports growing at a double-digit rate. However, he warned that the headline numbers concealed major differences between sectors.

Rosli said the strength of overall data was masking severe pressure in some businesses, particularly as different parts of the economy were moving at very different speeds.

“For example, logistics, secondary manufacturing and local construction are the groups we expect to be hit hard. Although other thriving businesses may temporarily offset the figures in the national accounts, the distress at the micro level is real,” he said.

Malaysia’s SMEs under heavy pressure

Malaysia and the Philippines are among the countries hardest hit, with SMEs facing the greatest risk as higher costs and weaker demand erode already thin margins.

In Malaysia, more than 100 small furniture factories in Muar, the country’s largest furniture manufacturing hub, have closed in recent months. Industry players said the impact of the war had worsened pressure already created by tariff measures affecting exports to the United States.

Jeffrey Ng, owner of TKL Furniture, which exports all of its products to the US, said smaller factories were shutting down one after another as operators struggled to absorb rising costs.

“Small factories are beginning to close one after another. Around us, long-established factories are shutting down because they can no longer endure the pressure,” he said.

“Smaller operators can no longer withstand the squeeze, so they have to close. Older companies that made money in previous years are choosing to shut down and turn their assets into cash rather than allow their money to keep draining away.”

Freight disruption delays export deliveries

Steve Ong, president of the Johor Furniture Association in southern Malaysia, said the impact of the war extended beyond the countries directly involved in the conflict.

He said global freight transport had been severely disrupted, pushing up shipping costs and prompting foreign customers to delay taking delivery of goods.

A May survey by the Federation of Malaysian Manufacturers found that 28% of 225 respondents had either reduced staff or planned to do so as a direct result of the crisis, while 72% said their business conditions had worsened.

Philippines hit by manufacturing job losses

In the Philippines, government data showed that factories cut about 217,000 jobs in March, equivalent to 5.8% of the country’s manufacturing workforce.

The country’s manufacturing PMI also fell into contraction territory, making it the weakest among ASEAN’s six largest economies.

Miguel Chanco, chief emerging Asia economist at UK-based Pantheon Macroeconomics, said Philippine manufacturers were under pressure from both the demand and supply sides, as higher energy costs affected production costs and consumer purchasing power.

He said the Philippines was also more exposed than some neighbours because its export sector had benefited less from the AI hardware boom, which has supported electronics and component shipments in other parts of the region.

Chanco added that the Philippine government had a thinner policy cushion than some regional peers, including fewer fuel-related support measures than countries such as Indonesia and Malaysia.

Vietnam’s export engine begins to slow

Vietnam is also seeing signs of strain despite electronics exports remaining a key driver of growth.

Andrew Harker, economics director at S&P Global Market Intelligence, said the latest survey showed output was still rising, but the pace of expansion had slowed close to stagnation. With new orders beginning to fall, he warned that production could contract in the coming months unless price and supply conditions improve soon.

One of the sectors facing heavy pressure is Vietnam’s footwear industry. Phan Thi Thanh Xuan, vice-president of the Vietnam Leather, Footwear and Handbag Association, said export markets in the Middle East had been effectively frozen by the conflict.

She said a 15% rise in transport costs and a 30% increase in raw-material prices linked to higher crude oil prices had left local factories in a difficult position, as many export contracts had already been agreed in advance at fixed prices.

As a result, manufacturers have little room to pass higher costs on to buyers and are being forced to absorb the increase themselves.

Oil-linked raw-material costs shake supply chains

The surge in crude oil-linked raw-material prices is spreading through supply chains across Southeast Asia.

In Thailand, John Higham, chief commercial officer of Element 6 Evolution, a sailing yacht shipyard near Laem Chabang Port, said the company could no longer ship key composite materials from Dubai by sea.

“The big problem is resin, which is our heaviest main raw material,” he said. “We now have to fly in thousands of kilogrammes of this hazardous cargo instead, because if we do not, the entire factory will have to stop production.”

The emergency switch to air freight has pushed the company’s resin costs up by as much as 40%.

Indonesia’s plastics and automotive sectors feel the strain

The cost shock is also spreading in Indonesia, where the Indonesian Employers Association said 10 out of 16 manufacturing sectors were growing far more slowly than the country’s overall economic expansion of 5.61% in the first quarter.

Higher naphtha prices have directly affected the domestic plastics industry, while the Indonesian Automotive Industry Association is surveying the impact on supply chains as rising costs and transport delays intensify pressure on manufacturers.

Singapore firms shift towards regional sourcing

As long-distance supply chains become more risky, companies in the region are starting to shift towards nearby sourcing partners.

Singapore-based firms, which remain among the most confident in the region, are seeking new raw-material sources to diversify risk.

Melvin Tan, vice-president of the Singapore Manufacturing Federation, said many manufacturers were turning to the newly established Johor-Singapore Special Economic Zone and nearby Indonesian factories as alternative bases for sourcing materials and supporting production.

The shift reflects a broader reassessment of supply chains, as companies try to reduce exposure to distant suppliers and volatile freight routes.

Analysts warn of ASEAN domino effect

Analysts warn that conditions could worsen unless raw-material supplies improve quickly.

Malaysia’s CIMB investment bank said a central bank survey showed that factories had, on average, only three to four months of raw-material inventory remaining. This suggests shortages could become more severe from the end of the second quarter of 2026 onwards.

Rosli said the current situation had become a crisis that headline GDP figures may not capture immediately because the damage is unfolding gradually.

“The transmission of impact will spread quietly from one domino to another. It works like a fire that burns slowly,” he said.