JAKARTA: Indonesia’s manufacturing activity, as measured by the manufacturing Purchasing Managers’ Index (PMI), bounces back into expansion territory thanks to stronger domestic and global demand after four consecutive months of contraction.
Based on a survey of purchasing executives from around 400 manufacturing companies across Indonesia, the PMI report published by S&P Global on Monday showed the index rising to 51.5 in August from 49.2 in July.
This was the first time in five months that the index climbed above the 50-point threshold separating expansion from contraction.
S&P Global Market Intelligence economist Usamah Bhatti wrote in the report that the headline PMI marked a “renewed improvement in operating conditions”, as firms recorded fresh growth in both output and new orders.
New orders were mainly driven by a strong rise in exports, which grew at the steepest rate since September 2023, alongside stronger demand in the domestic market.
Manufacturers increased their employment levels to meet higher production requirements and demand. The report noted this as the first increase in job numbers in three months, albeit a modest one.
“Firms were also hopeful that output growth would continue in the near term, as the degree of optimism regarding the year-ahead outlook strengthened,” said Bhatti.
Manufacturers also raised purchasing activity in response to improving market conditions and expressed optimism that production volumes would increase over the coming year.
The degree of confidence “was robust” and picked up from the preceding month, though it remained “below the long-run series average”, the report noted.
The positive sentiment was underpinned by expectations of improving economic conditions and stronger customer spending.
Permata Bank chief economist Josua Pardede said on Monday that the manufacturing PMI survey reflected an overall recovery in Indonesia’s manufacturing sector.
“However, challenges in the form of import prices and supply uncertainties still loom large,” Josua added.
The report stated that input cost inflation was “solid” in August, though lower than the long-run average and the second slowest in five years, when the June figure was excluded.
However, anecdotal evidence pointed to rising prices of imported raw materials, driven by a stronger US dollar.
Bank Danamon economist Hosianna Evalita Situmorang said on Monday that higher import costs, exacerbated by a weaker rupiah, made currency stability “crucial” in this context.
“The recovery reflects resilient domestic consumption, stronger investment flows and accelerated government spending,” Hosianna said of the overall PMI survey.
Industry Minister Agus Gumiwang Kartasasmita said in a statement on Monday that he welcomed the August manufacturing PMI, “which shows the recovery of national manufacturing performance”.
However, he cautioned that the positive trend could only be sustained if national stability was maintained, referring to the context of recent nationwide protests.
“Industry needs conducive conditions to carry out its operations. Situations leaning towards destabilisation, treason or riots, I fear, would drag industrial players’ optimism back down,” said Agus.
The archipelago experienced a turbulent week, with nationwide protests sweeping the country.
Although the unrest appears to be dying down, whether conditions have truly returned to normal remains uncertain, as multiple groups have announced unconfirmed plans to return to the streets this week.
What began as a localised protest on Aug 25 escalated last Thursday and in the days that followed, after the killing of 21-year-old motorcycle taxi driver Affan Kurniawan, who was run over by a police tactical vehicle.
President Prabowo Subianto issued a statement on Sunday regarding the protests, affirming that “genuine aspirations and the right to peaceful assembly” would be respected, but instructed authorities to respond firmly to what he described as the protests’ “treasonous” and “terrorist” elements.
Foreign businesses in Indonesia have voiced concern that the widespread unrest could be a sign of political instability, urging the government to take appropriate measures to restore order as soon as possible.
Several events scheduled for the weekend and this week were cancelled or moved online due to the protests, while many companies implemented work-from-home schemes and schools closed amid fears of further escalation. — The Jakarta Post/ANN
