Indonesia's manufacturing activity has experienced a continued downturn in September, remaining below the critical 50.0 no-change threshold for the third consecutive month. This situation is attributed to soft demand and diminishing output levels. According to a recent report from S&P Global, the Indonesia Manufacturing Purchasing Manager's Index (PMI) increased slightly to 49.2 from 48.9 in August.
However, this figure still signifies contraction in the manufacturing sector. The data revealed a monthly decrease in both production and new orders, as market demand continues to be sluggish. Client engagement has dropped significantly compared to earlier in the year, highlighting the challenging landscape facing manufacturers in Indonesia, as indicated by S&P Global. Paul Smith, the economics director at S&P Global Market Intelligence, noted that the disappointing performance of Indonesia's manufacturing sector can be largely linked to a generally subdued global macroeconomic climate observed during September.
A noteworthy finding in the report is the steepest decline in external sales seen in almost two years, underscoring the impact of reduced international demand on Indonesian manufacturers. Furthermore, the report reveals that new export business marked its most substantial decrease since November 2022, compounding the difficulties faced by manufacturers in the region. In response to this persistently weak manufacturing activity, many firms have significantly curtailed their purchasing activities.
For the first time since June 2023, output prices were reduced marginally, reflecting the rising pressure on manufacturers to remain competitive amidst declining demand. Interestingly, despite these challenges, employment levels within the manufacturing sector reached a three-month high, a sign of mixed sentiment within the industry.
This elevated employment figure indicates a degree of optimism, as companies prepare for potential improvements. Confidence among Indonesian firms saw an upswing in September, reaching a seven-month high. This bolstered sentiment is linked to expectations of a more stable operational environment in their manufacturing plants over the coming year, offering a glimmer of hope amidst the current economic challenges faced by the sector..