Source: Ministry of Industry of the Republic of Indonesia

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The operating conditions of Indonesia's manufacturing sector have continued to improve in the last 12 months. This is reflected in the country’s Manufacturing Purchasing Managers' Index (PMI or Manufacturing Index) which reached 51.7 in August 2022, up from 51.3 in the previous month. Indonesia's PMI continues to show improvement amidst declines among other Asian countries such as South Korea (47.6 in August 2022 from 49.8 in July 2022) and Japan (51.5 from 52.1 in the same period). 

Analysis from independent rating provider S&P Global shows that there was fairly strong improvement in the manufacturing sector in the last four month, as well as a production increase for three consecutive months – making it the fastest combined increase in seven months. Another improvement was the fastest pace of increase in demand and expansion of new orders in six consecutive months. “The Increase in domestic sales drove the increase of our Manufacturing Index. This indicates that efforts to recover the economy after the pandemic are showing their positive impacts," said Industry Minister Agus Gumiwang Kartasasmita in Jakarta on Thursday (9/1). 

Inflationary pressures in the manufacturing sector also eased as marked by the slower rate of increase in input and output prices. The rise of Indonesia’s PMI also contributed to the increase in job creation in August, as shown by the increase in the number of unfinished businesses in the same month.  

The report further states that overall business sentiment in Indonesia's manufacturing sector would remain positive with the expectation of a sustained recovery in demand. In response to this, the Minister of Industry again reminded the need to anticipate the impact of the Russia-Ukraine geopolitical condition that had been triggering a global food and energy crisis – two issues that could affect the supply of commodities for the manufacturing sector. 

“The manufacturing industry sector continues to experience an increase in investment. I am optimistic that this trend will continue until the end of the year. Therefore, we will continue to try and overcome the existing investment barriers," Mr. Kartasasmita said. 

Additionally, Mr. Kartasasmita expressed his determination to continue to drive domestic consumption by ensuring that domestic industrial products are absorbed locally as much as possible by implementing the government’s Domestic Products Utilization Intensification Program (also known as P3DN). "I have advised industry players to continue to increase their capacity and utilization, make adjustments, and ensure that industrial companies are taking advantage of this policy," he said. 

S&P Global Market Intelligence economist Laura Denman said clearer growth in output and new total demand shows the health of the economy going forward. The company also cited stronger demand conditions. Price pressure due to inflation is also expected to decrease continuously due to the declining impact of COVID-19. However, overall business confidence declined from July's position.