Indonesia's Manufacturing Index at 49.3 in July 2024, Worst in 3 Years

S&P Global data shows that Indonesia's manufacturing Purchasing Manager's Index (PMI) contracted to 49.3 points in July 2024.

Signs of declining industrial performance have been evident since April 2024. Since then, Indonesia's manufacturing PMI has consistently worsened. However, compared to a year ago, Indonesia's manufacturing PMI performance was better, standing at 53.3 points in July 2023.

S&P explains that this negative score indicates a decline in manufacturing operating conditions.

"Although showing a marginal contraction, this is the first time the PMI has fallen into negative territory since August 2021," wrote S&P Global in a report published on Thursday (August 1, 2024).

The PMI decline reflects a moderate decrease in output and new orders. This is also evident in the slowdown of export sales.

There is some evidence that despite an overall production decline, the manufacturing sector continued to produce excess output in July 2024. S&P notes that finished goods inventories increased significantly for the fifth time in the last six months. Companies were able to complete outstanding work.

"Producers chose to slightly reduce their purchasing activity in July, marking the first decline since August 2021," said S&P Global.

Simultaneously, companies reduced their workforce for the third time in the last four months. S&P states that this staff reduction was the sharpest in almost three years.

"Many reports indicated that employee contracts were not renewed," said S&P Global.

Supply constraints also hampered production capacity last month, with delays in input deliveries.

The latest survey data shows that average lead times lengthened for the first time in three months. Panelists reported to S&P Global challenges on crucial shipping routes, such as in the Red Sea region.

Meanwhile, input price inflation eased in July, although it remains high. A general increase in raw material prices, coupled with a weak exchange rate, fueled inflationary pressures.

"Producers responded by raising charges to their highest level in three months," said S&P Global.