Indonesia Manufacturing PMI Plummets to 46.9 as Weak Demand Deepens, Government Bets on Cheaper Gas to Revive Industry

JAKARTA, Investortrust.id — Indonesia's manufacturing sector slipped back into contraction in June after S&P Global's Manufacturing Purchasing Managers' Index (PMI) fell to 46.9 from 50.0 in May, underscoring mounting pressure on Southeast Asia's largest economy as weakening demand and surging production costs weighed on factory activity.

The reading marked a decisive move below the 50-point threshold separating expansion from contraction, with manufacturers reporting weaker new orders from both domestic and overseas markets, prompting cutbacks in production, raw material purchases and hiring.

Manufacturing accounts for roughly one-fifth of Indonesia's economy and remains one of its largest employers, making the PMI a closely watched gauge for investors tracking economic momentum.

A prolonged contraction could weigh on corporate earnings, exports and employment, while reinforcing concerns that Indonesia's industrial recovery is losing steam despite government efforts to strengthen downstream processing and attract manufacturing investment.

Government Pins Hopes on Cheaper Industrial Gas

Indonesia's Ministry of Industry, which oversees manufacturing policy, said the June weakness reflected softer demand and escalating production costs rather than structural deterioration in the sector.

"The current situation should be viewed as a challenge that must be addressed by strengthening policies to improve the competitiveness of Indonesia's manufacturing industry," ministry spokesman Febri Hendri Antoni Arief said in a written statement released on Wednesday.

According to the ministry, manufacturers also faced one of the sharpest increases in input costs since S&P Global began compiling Indonesia's PMI survey in 2011, driven by higher raw material prices and a weaker rupiah.

Gas Supply Becomes Key Policy Focus

The ministry said one of its main policy responses is expanding the Certain Natural Gas Price (HGBT) program, which caps natural gas prices for eligible industrial users to reduce energy costs and improve competitiveness.

"The policy has already been felt by industry players and has proven capable of improving production efficiency while maintaining the competitiveness of Indonesian manufacturing products. Its implementation needs to be strengthened so that more industries can fully benefit," Febri said.

The government has also lowered the price of regasified liquefied natural gas, or LNG, supplied to manufacturers to $13 per million British thermal units (MMBtu) from around $20-$23 per MMBtu, aiming to reduce operating costs and help companies avoid layoffs.

"The reduction in industrial LNG prices is good news for manufacturers and is one solution to return Indonesia's Manufacturing PMI to expansion territory in the coming months," Febri said.

Government Sees Recovery Ahead

Despite June's contraction, the ministry said the latest S&P Global survey showed manufacturers had become more optimistic about business prospects over the next 12 months.

Officials attributed the improving sentiment to expectations that input cost pressures will ease and market demand will gradually recover.

The ministry added that it will continue supporting manufacturers through wider use of domestic products, investment facilitation, stronger protection against unfair trade practices, and efforts to expand exports into non-traditional overseas markets.

"In a situation where competing countries continue to move aggressively, the government will not stand still. Through close coordination across ministries and agencies, we will continue working to create a more conducive business environment," Febri said.