JAKARTA: Indonesia’s manufacturing purchasing managers’ index (PMI), the key gauge of factory activity in the country, has touched its lowest point since the pandemic, as demand is feeble and manufacturers are on edge about the tariff turmoil.
Based on a survey of purchasing executives from around 400 manufacturing firms across Indonesia to determine business conditions, the PMI report published by S&P Global last Friday showed the index nosedived by 5.7 points to 46.7 in April from 52.4 in March.
April’s drop marked the first time in five months in which national manufacturing activity contracted, as indicated by readings below the 50-point threshold that separates expansion from contraction.
S&P Global Market Intelligence economist Usamah Bhatti wrote in the report that the headline PMI indicated the “sharpest deterioration in the health of the sector” since August 2021, when the country was still ridden with the Covid-19 pandemic.
“In response, firms engaged in retrenchment by scaling back purchasing and employment levels while also winding down stocks of inputs and finished items,” said Bhatti.
“The near-term outlook remains clouded, as manufacturers redirected capacity to complete outstanding business in the absence of sales, suggesting that the current malaise will extend into the coming months.”
The report details that production has been at the fastest pace since mid-2021 and that the stronger US dollar has raised prices of imported goods, leading to firms attempting to “protect their margins” by increasing the charges to customers.
“Demand was reportedly weaker in both domestic and external markets. In fact, volumes of new export orders fell into decline for the second time in three months,” the report said.
Manufacturers also responded to the weaker demand by scaling back hiring, as the survey found the first new work reduction in five months, “with the rate of decline being sharp overall”.
Notwithstanding the overall poor conditions, Indonesian manufacturers remained optimistic that production volumes would rise over the coming year, underpinned by hopes that economic conditions would improve and raw material prices would decline.
“The year-ahead outlook, however, remains positive, as firms expect production to rise due to improved economic conditions and stronger purchasing power among clients and customers. Nonetheless, the timing of any such recovery has dampened some firms’ expectations,” said Bhatti. — Jakarta Post/ANN
