Indonesia Manufacturing Contracts Further as New Orders Drop at Fastest Pace Since 2021
Main Takeaways
|
JAKARTA, Investortrust.id — Indonesia’s manufacturing sector suffered a deeper downturn in June, as new orders fell at the sharpest pace in nearly four years, signaling continued headwinds for the country’s industrial recovery. The S&P Global Indonesia Manufacturing Purchasing Managers’ Index dropped from 47.4 in May to 46.9 in June, marking the second-lowest reading since August 2021 and indicating a deterioration in operating conditions.
June marked the third consecutive month of contraction in new orders, with the latest decline being the steepest since August 2021. According to survey respondents, weak domestic demand was the primary cause, as export orders stabilized after two months of decline.
“Demand conditions were detrimental to growth, with sales falling to the greatest extent since August 2021,” said Usamah Bhatti, economist at S&P Global Market Intelligence, in a statement on Tuesday, July 1, 2025.
"The reduction in sales was largely domestic-driven, as export sales stabilised on the month," Bhatti noted, resulting in firms cutting back on production, purchasing, and employment.
Job Cuts Deepen, Purchasing Activity Shrinks
The sluggish demand environment led to a second drop in employment in three months, with June recording the sharpest workforce reduction since September 2021. Purchasing activity also fell for the third month in a row, albeit modestly, while post-production inventories declined at a faster pace than pre-production stocks.
As output slowed, backlogs of work fell slightly, further underscoring the weak capacity pressures across factories. Input costs continued to rise, though at the slowest rate since October 2020. Companies responded by raising selling prices only fractionally to remain competitive.
Confidence Drops to Eight-Month Low
Looking forward, Indonesian manufacturers expressed lower confidence about the 12-month outlook for output. Business optimism fell to its weakest level since October 2024, amid lingering concerns about the global economic climate and potential spillover effects on domestic industry.
“The malaise in total new orders prompted firms to enter retrenchment mode,” Bhatti added.
“Looking forward, firms were less bullish towards the outlook for output, as confidence fell to an eight-month low. The softer degree of confidence came amid concerns regarding the health of the global economy and potential spillovers into the Indonesian manufacturing sector," he said.