Indonesian factories face export slowdown amid potential global recession


In textile production centres in West Java and Central Java, some factories are temporarily imposing mandatory leave on their workers. - Bloomberg

JAKARTA (The Straits Times/Asia News Network): Indonesia's textile factories have been hit by cancellations of overseas orders as the threat of a global recession looms, and other businesses are expected to face a slowdown in exports in the coming months.

Due to unfavourable economic conditions such as high inflation in major export destinations, particularly the United States and European Union, Indonesian textile exporters saw their buyers cancel orders in the third quarter of this year, said chairman of the Indonesian Fibre and Filament Yarn Producers Association, Redma Gita Wirawasta.

"Demand from the US and EU are dwindling. Around 40 per cent of orders have been cancelled," he told The Straits Times.

The lower demand in overseas markets, and stiffer competition in the domestic market due to a surge in imported products from the end of the second quarter, have resulted in the accumulation of stocks, causing factories to cut production, he added.

In textile production centres in West Java and Central Java, a number of factories are temporarily imposing mandatory leave on their workers, he noted.

A gloomy outlook also clouds the export-oriented footwear industry.

American and European buyers already projected fewer orders for their Indonesian suppliers in the fourth quarter of 2022 and the first half of 2023, said Mr Budiarto Tjandra, deputy chairman of the Indonesian Footwear Producers Association.

The US and EU account for 60 per cent of Indonesian footwear exports.

"They usually reduce orders when their inventory is high," he said, adding that the decline in future purchases is "quite significant".

The World Trade Organisation forecast a slowdown of global trade growth in 2023 as sharp increases in energy and food prices, coupled with surging interest rates, curb import demand. Trade will expand by only 1 per cent, lower than the 3.4 per cent forecast earlier, it said on Oct 5.

The International Monetary Fund on Oct 11 predicted that global growth will slow to 2.7 per cent in 2023, and warned of a risk of global recession spurred by interest rate hikes.

Indonesian Chamber of Commerce and Industry deputy chairman Shinta Widjaja Kamdani said that Indonesian exports of value-added goods, such as clothing, wearable electronics and automotive, will likely be affected by the weaker purchasing power of overseas buyers in 2023.

"The decrease in demand will be largely felt by industrial sectors and companies whose exports are focused more on markets with high potential crises next year, such as the US, EU, Japan, or even China," she said.

Executive director of Centre of Reform on Economics Indonesia, Dr Mohammad Faisal, said that the weakening exports will materialise in the fourth quarter of this year, as a number of purchase orders were cancelled, and will continue next year.

He warned that the risks of export slowdown will go beyond manufactured products, affecting outbound shipment of commodities such as coal to top buyers, especially China.

"The trade surplus will likely shrink and possibly turn into a deficit when not only export volume, but its value, also drops as a result of falling prices," he said.

From January to August 2022, Indonesia's non-oil and gas exports climbed by 35.24 per cent to US$183.73 billion (S$264 billion), while its imports rose by 22.71 per cent to US$132.06 billion, resulting in a surplus of US$51.67 billion.

Shinta said the government needs to support exporters in diversifying trade, including by expediting logistics services to new export destinations and enhancing trade facilitation through free trade agreements.

This will help sustain Indonesia's export levels to some extent when global demand contracts in times of a crisis, she added.

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