Indonesia expects 4% growth in manufacturing sector this year after 2020 slump

Workers assemble Isuzu Traga trucks at the Isuzu factory in East Karawang of West Java in this undated photo. - JP

JAKARTA (The Jakarta Post/ANN): The government has forecast growth of nearly 4 per cent for the manufacturing sector this year, which would mark a turnaround from the slump last year, as the country gears up for a coronavirus vaccination programme.

Industry Minister Agus Gumiwang Kartasasmita said Tuesday that the positive outlook was based on the increase in investment in the sector and promising export figures despite the pandemic severely impacting the industry last year.

“For 2021, the manufacturing sector’s growth is forecast to return to positive territory. All manufacturing subsectors will grow, assuming we have brought the pandemic under control and economic activities have recovered, ” Agus said in a virtual event.

In the January–September period of last year, realized investment in the manufacturing sector totaled Rp 201.9 trillion (US$14.2 billion), marking an increase of around 37 per cent year-on-year (yoy) over the same period of 2019, according to the Investment Coordinating Board (BKPM).

Exports from the manufacturing sector also showed an increase of 14.47 per cent yoy to around $12.1 billion in non-oil and gas exports in November 2020, Statistics Indonesia (BPS) data shows.

Last year, the Covid-19 outbreak significantly impacted the manufacturing activity due to the implementation of strict movement restrictions to curb the virus spread and disruptions in supply chain and production activities.

The sector’s economic output shrank by 4.31 percent yoy in the July–September period as the economy contracted by around 3.49 percent yoy due to the coronavirus pandemic, leading the country to enter its first recession in two decades.

Meanwhile, Agus also explained his hopeful outlook with the recent improvement in the Manufacturing Purchasing Managers’ Index (PMI), a compilation of responses from a monthly survey of 400 manufacturers by business information provider IHS Markit.

The index rose to 51.3 in December from 50.6 in November. Index readings above 50 point to an expansion from the previous month.

“There remains a long way to go given the severe disruption caused by the Covid-19 pandemic, but manufacturers are at least confident regarding the prospects for 2021, ” IHS Markit economics director Andrew Harker said in a statement on Jan 4.

However, the recent surge in daily new confirmed cases and active cases that has left hospitals overburdened made the minister’s projection “less realistic, ” said Andry Satrio, the head of the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance (Indef).

On Tuesday, Indonesia registered more than 10,000 new confirmed cases, bringing the cumulative number to 846,765 cases.

“The first wave showing no sign of declining is one of the reasons why we will see economic activities unable to run optimally, ” Andry told The Jakarta Post on Tuesday.

Amid the rise in Covid-19 cases, the government has tightened movement and business restrictions in some cities and regencies across Java and Bali islands until Jan 25, requiring public places to limit capacity and operational hours, among other things.

Meanwhile, the vaccination programme, set to begin on Wednesday to cover 181 million people, is expected take some time to support an economic recovery, as the initial focus of the program is on frontline medical workers.

The government has already received 3 million doses of the ready-to-use vaccine made in China and has distributed them to regions across the country. It has secured vaccine pre-orders from other foreign producers as well.

“Thus, there are health protocols with which we still need to comply, which in turn reduces mobility and economic activities, ” added Andry.

Shinta Kamdani, the deputy chairwoman of the Indonesian Chamber of Commerce and Industry (Kadin), said Tuesday that the manufacturing sector’s recovery could not rely on exports, because only a few manufacturers were integrated into global supply chains.

Shinta also said that, as long as pandemic restrictions were in place, it would be hard to boost production in the sector as it hinged on demand at home, particularly for leading subsectors like garments, footwear and auto industries.

“Moreover, if strict protocols and a total lockdown policy still loom this year insofar as the pandemic remains out of control, we are afraid that the [growth] target will be hard to achieve, ” Shinta told the Post via text message. - The Jakarta Post/Asia News Network

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Indonesia , growth , manufacturing , 2021


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