Indonesia’s Manufacturing Slump Eases in July, but Business Confidence Plummets to Record Low
Main Takeaways
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JAKARTA, Investortrust.id – Manufacturing activity in Indonesia shrank for a fourth consecutive month in July, but the downturn showed signs of easing as declines in output and new orders slowed. However, business sentiment weakened sharply, hitting its lowest level since S&P Global began tracking confidence in April 2012.
The S&P Global Indonesia Manufacturing Purchasing Managers’ Index (PMI) rose to 49.2 in July from 46.9 in June. Although still below the neutral 50.0 threshold that separates growth from contraction, the reading suggests a more moderate pace of deterioration in operating conditions.
The survey, conducted between July 10 and July 24, captured data before Indonesia and the United States announced a bilateral trade agreement on July 22. The new deal is expected to boost trade in select sectors, but it has yet to alter manufacturers’ expectations.
“July's data indicates the Indonesian manufacturing sector remains under pressure, although not as severely as in June,” said Usamah Bhatti, Economist at S&P Global Market Intelligence. “The decline in output and new orders has softened, but a fresh fall in export demand and persistent job and purchasing cuts point to a sector still in retrenchment.”
External Headwinds and Price Pressures
Manufacturers cited weak domestic and foreign demand as key challenges. While some firms reported new project starts, overall new business continued to decline. Export orders, which had stabilized in June, fell back into contraction territory, marking the third such drop in the past four months.
At the same time, input cost inflation surged to its highest level in four months, driven by rising raw material prices and unfavorable exchange rate movements. The rupiah has faced depreciation pressure amid global geopolitical tensions, including the Iran-Israel conflict, which also contributed to longer supplier delivery times.
Output prices rose in response, with factory gate charges increasing at the steepest rate since April. Still, S&P Global noted that the pace of charge inflation remained modest, indicating limited pricing power among manufacturers.
Weakening Optimism
Employment fell again in July, though at a slower pace than in June. Manufacturers continued to rely on existing inventories to meet demand, leading to a fourth straight monthly drop in post-production stock levels. Purchasing activity also declined, as companies sought to reduce input inventories.
Perhaps most concerning is the steep decline in business confidence. Manufacturers’ expectations for output in the year ahead fell to their lowest point since the index series began in 2012. While some firms expressed hope for improved economic conditions and lower input costs, others flagged concerns about US tariffs and weakened client purchasing power.
“Manufacturers are clearly worried about the year ahead,” said Bhatti. “They are seeing limited demand recovery, tighter margins, and growing uncertainty around global trade dynamics.”
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