Indonesia’s Purchasing Manager Index (PMI) rose by 0.7 points to 5.9 in March, indicating a strengthening of confidence among businesses as new order growth drives output and vendor performance continue its improvements from the previous month. 

As revealed in the latest S&P Global Indonesia Manufacturing PMI report, Indonesia’s manufacturing sector continued to expand at the end of the first quarter, with higher production leading to renewed accumulation of backlogged work. This resulted in increases in both the purchase of capital goods as well as in staff hiring. Supply constraints have also continued to ease from last month, while selling price inflation trended downward to a 28-month low, improving the country’s overall business confidence.  

Demand for Indonesian manufactured goods rose at the fastest rate in six months in March, reflecting better demand and possibly a widening of customer bases for Indonesian manufacturers. New export orders declined amidst weaker market conditions abroad, but the pace of reduction was mild. 

Concurrently, the level of backlogged work also expanded, as stronger new order growth placed pressure on capacities. This led Indonesian manufacturers to increase their workforce for the second month in a row, albeit marginally. 

Another repeat occurrence in March was the ease in supply constraints. Lead times shortened at the joint-fastest pace in over three years, which signals better transportation performance and the easing of supply shortages. 

As for input cost inflation, the climb was much softer than expected. Manufacturers in Indonesia passed on their increased cost burdens at a slower rate to customers. Notably, the rate of output price inflation was the slowest seen since November 2020.  

Overall, the improvements in demand conditions and sales projections have led to an increase in business confidence. However, as noted by Economics Associate Director at S&P Global Jingyi Pan, this positive level of business confidence remains subdued compared to the historical average. 

“It will be important to see demand growth sustained to support further improvements in manufacturing performance,” he said.