Factory Activity Slips to 49.8 on Output Drop, but Business Confidence Rebounds to 7-Month High

JAKARTA, Investortrust.id — Factory activity in Southeast Asia’s largest economy slipped back into contraction territory in August, as renewed drops in production and payroll numbers eclipsed a slight revival in demand.

The headline S&P Global Indonesia Manufacturing Purchasing Managers’ Index (PMI) fell to 49.8 in August from 50.2 in July, crossing back below the critical 50.0 threshold that separates monthly expansion from contraction.

Fragile Industrial Base Tests Regional Growth Momentum

The slip into contraction highlights persistent demand headwinds across emerging Asia's industrial hubs, where heightened price competition and cautious consumer spending continue to restrain output. With factories trimming headcounts and running down finished-goods inventories at a four-year record pace, sustained private investment will rely heavily on whether domestic order books gain real traction in the second half of the year.

Production and factory payrolls shrank again in August, marking declines in five of the last six survey periods. Manufacturers attributed the output cuts to intense market competition, sluggish end-user purchasing power, and elevated raw material costs.

"The latest PMI data pointed to a mild deterioration in the health of Indonesia’s manufacturing sector, as renewed falls in output and employment reversed the improvement recorded in the previous month," said Maryam Baluch, Economist at S&P Global Market Intelligence, in the survey report released Tuesday (Sep. 1, 2026). "Demand conditions, meanwhile, were broadly neutral."

Order Books Stabilize While Inventories Plunge

Despite the broader contraction, total new orders crossed back into expansion for the first time in three months, supported by higher client inquiries at selected firms. Purchasing activity also halted a five-month slide to finish broadly flat on the month.

To manage cash flows, manufacturers aggressively drew down post-production stockpiles, driving finished-goods inventories down at the joint-fastest rate in over four years, matching levels last seen in May 2025.

Easing Price Pressures Bolster Long-Term Outlook

Operating conditions received relief from cooling cost pressures, with input price and factory-gate charge inflation easing further across the manufacturing base.

The softer inflationary backdrop pushed twelve-month business expectations to a seven-month high, reflecting broad industry optimism that market conditions will stabilize.

"Business confidence also continued to recover from April, suggesting that, despite the sector’s muted overall performance, manufacturers remain hopeful that production will rise over the coming 12 months," Ms. Baluch added.