Indonesia’s Manufacturing Sector Strengthens as New Orders Surge

JAKARTA, investortrust.id – Indonesia’s manufacturing sector continued its strong growth momentum in February, driven by a surge in new orders and increased production activity. The latest data from S&P Global shows that the country's Manufacturing Purchasing Manager’s Index (PMI) climbed to 53.6 in February, up from 51.9 in January, marking the strongest improvement in factory operating conditions in nearly a year.

The robust expansion was fueled by rising domestic demand, prompting manufacturers to ramp up output, increase purchasing activity, and expand their workforce at the fastest rate recorded since the survey began nearly 14 years ago.

Joe Hayes, Principal Economist at S&P Global Market Intelligence, highlighted the resilience of Indonesia’s manufacturing sector despite global trade uncertainties. “The pick-up in growth momentum seen across Indonesia’s manufacturing sector carried through to February, boding well for a strong opening quarter for 2025,” Hayes said.

Manufacturing Output Gains Momentum

February’s PMI reading, the highest in 11 months, indicates a solid expansion in the health of Indonesia’s goods-producing sector. Central to this growth was a sharp increase in new orders, which rose for the third consecutive month at the fastest pace since March 2024. Industry participants reported stronger market activity, particularly in the domestic sector, while export demand saw a slight decline.

To meet growing demand, manufacturers accelerated production, with output expanding at the quickest pace in nine months. The uptick in sales outpaced production growth, leading to a mild accumulation of backlogged work. In response, firms boosted their purchasing activity, increasing input stocks at one of the sharpest rates on record.

Despite higher purchasing levels, supply chain disruptions remained minimal. While some manufacturers experienced longer supplier delivery times, the delays were only marginal.

Hayes acknowledged the slight decline in export orders but emphasized the strength of domestic demand. “Faltering exports may be a disappointment, but with global trade uncertainty surrounding protectionism, it’s a promising sign that Indonesian factories remain positive on demand prospects. This suggests the domestic market could be a key source of growth, at least in the near term,” he added.

Employment Growth Hits Record High

The surge in new orders also led to a record-breaking expansion in employment. February saw the steepest rise in workforce numbers since data collection began, reflecting manufacturers' efforts to strengthen capacity in anticipation of sustained growth.

Looking ahead, Indonesian manufacturers expressed strong confidence in future business prospects. Optimism regarding output growth reached its highest level since March 2022, supported by expectations of continued demand strength.

“Demand conditions were highly supportive, prompting a survey-record expansion in employment and greater purchasing volumes. We also saw companies turn more bullish towards the outlook as confidence rose to its highest level in almost three years,” Hayes said.

Inflation Pressures and Rising Costs

While the manufacturing sector experienced a surge in demand, cost pressures intensified. A weaker exchange rate, higher raw material prices, and vendor mark-ups contributed to rising input costs. Additionally, some businesses cited the recent increase in value-added tax (VAT) as a reason for adjusting selling prices.

To maintain profit margins, manufacturers raised their output prices in February. However, the rate of price increases remained moderate and was the slowest in four months, suggesting that firms are managing cost pressures carefully to sustain demand.

With strong business confidence, rising domestic demand, and expanding employment, Indonesia’s manufacturing sector appears set for continued growth in the months ahead.