Indonesia’s manufacturing sector has experienced notable volatility in the first half of 2025. The S&P Global Manufacturing Purchasing Managers’ Index (PMI) showed signs of early strength, rising to 53.6 in February—the highest in Southeast Asia at the time. However, the index dropped sharply to 46.7 in April, marking the steepest contraction since August 2021, before slightly recovering to 47.4 in May. 

The decline in PMI signaled weakening domestic demand and shrinking exports, particularly to the United States. Layoffs, totaling over 24,000 workers by May, further dampened consumer spending. Input costs rose while manufacturers absorbed the burden, leading to reduced purchasing activity and inventory cutbacks. 

Indonesia’s Purchasing Manager Index Score, Jan-May 2025 

Source: S&P Global

Despite these setbacks, structural indicators suggest a degree of underlying resilience. Over the past five quarters, the non-oil and gas manufacturing sector has consistently contributed around 17 percent to Indonesia’s GDP. 

The Indonesian Statistics Agency (BPS) reported that the manufacturing sector grew 4.31% year-on-year in Q1 2025, with the food and beverage sub-sector expanding by 6.04%. Statista projects manufacturing value added to reach USD 216.62 billion in 2025, supported by 25,000 enterprises and 6 million workers. 

Share of Manufacturing (non-oil and gas) in Indonesia’s GDP, current prices 

Source: BPS

Challenges and Responses 

The contraction in factory activity has been attributed to both global and domestic factors. Trade disruptions, rising tariffs, and a post-Eid consumption drop have all contributed to the downturn. Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE) highlighted the severity of the April PMI decline, noting its unusual scale and correlation with weakened purchasing power. 

“The root problem is weak demand, both domestically and abroad,” Faisal said, as quoted by Jakarta Globe. “We need immediate policy intervention to avoid a prolonged downturn.” 

To address these challenges, the government has implemented multiple policy responses. The Ministry of Industry has prioritized downstream industrialization (hilirisasi) and reform of the Domestic Component Level (TKDN) to enhance domestic value creation. The policies are in alignment with the directives of the recently elected Indonesian President Prabowo Subianto, who has requested his administration to relax TKDN requirements in order to draw more foreign investors. 

The Ministry is also promoting industrial equity across regions by drafting a regulation for Special Industrial Zones (KIT), which aims to accommodate smaller or themed parks in land-constrained or strategic areas. Under the current regulation, as of May 2025, 170 industrial park operators had secured licenses, covering nearly 95,000 hectares with a 59.52% occupancy rate.  

From the private sector, calls for streamlined licensing, faster investment realization, and infrastructure development continue. The Indonesian Chamber of Commerce and Industry (KADIN) has emphasized the need for stronger domestic linkages and the acceleration of strategic national projects that rely on local manufacturing. Meanwhile, sub-sectors like chemicals and food processing have received policy backing, particularly through fiscal support and partnerships to drive innovation and sustainability. 

Looking Forward 

While Indonesia’s PMI remains below the 50-point threshold, indicating contraction, the slower pace of decline and rising employment in recent months suggest a sector in transition. Business sentiment has begun to improve, supported by expected fiscal stimulus and hopes of recovery in major export markets. 

With continued policy implementation, targeted incentives, and a focus on strategic sectors such as chemicals and food processing, Indonesia’s manufacturing industry may regain momentum in the latter half of 2025. The combination of long-term structural resilience and short-term stabilization measures offers cautious optimism for sustained industrial growth.