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Manufacturing continues to expand, but at a slower pace
Indonesiaâs manufacturing sector is growing slowly, as exports remain low amid uncertainty in the global market
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ndonesia's manufacturing sector is growing slowly, as exports remain low amid uncertainty in the global market.
An HSBC survey shows Indonesia's Purchasing Managers' Index (PMI) rose slightly to 51.4 in the second quarter of 2013 from 50.5 in the first quarter, a slight improvement in the manufacturing sector.
'Manufacturing activity in Indonesia continues to expand, but at a moderate pace. The slight contraction in new export orders, the first in four months, points to external headwinds amid a fragile global economic recovery,' said Su Sian Lim, an HSBC economist.
'Nevertheless, the overall PMI reading suggests that robust domestic demand continues to more than offset this drag,' she added.
With a population of about 240 million, domestic demand continued to be a major driver in the country's economy, in which consumption accounted for around 33 percent of gross domestic product (GDP) in 2012. The rise in domestic consumption is also driven by the growing middle class.
Research firm McKinsey Indonesia estimates that 90 million people will have entered the consumer class ' a class with an annual net income surpassing US$3,600 ' by 2030, opening up fresh business opportunities worth $1.8 trillion.
Panel members of the PMI survey, consisting of over 400 manufacturing companies in Indonesia, reported only a 'marginal' increase in output in the first quarter. They link the slowdown in production growth to weaker gains in incoming work and weather conditions.
The survey also reported decreasing export business for Indonesia's manufacturers in June.
According to the Central Statistics Agency (BPS), Indonesia-European Union trade slumped in January-April this year, where trade excluding oil and gas reached $5.47 billion, compared to $6.05 billion in the same period last year.
The latest contraction in foreign orders, said the survey, was commonly associated with increased competition, unfavorable exchange rates and weaker demand from European clients.
With input costs increasing recently, survey participants commented on higher raw material prices, in particular fuel and oil.
Although there was improvement in the second quarter, in June Indonesia posted a PMI of 51, which was a slide from 51.6 in May.
Some domestic resources, such as labor, continue to remain stretched, as evidenced by the employment sub-index rising to a 20-month high, said Lim.
Ali Setiawan, managing director head of global markets at HSBC Indonesia, said that HSBC still maintained its forecast of between 5.9 percent and 6.1 percent growth for Indonesia's economy this year.
He said the subsidized fuel hike, the increase of Bank Indonesia's (BI) deposit facility (Fasbi), as well as its benchmark rate, were good news for the market as they would improve economic structure.
Another move by BI seen as positive, said Ali, was to curb soaring property and housing prices by raising loan-to-value (LTV) levels for mortgages.
'It won't necessarily have an impact on the economy, as banking portfolios in the property sector in Indonesia start at a low-base, unlike other countries such as the US,' said Ali. 'However, it can be seen as anticipating things to ease credit consumption in property in the near future,' he added. (asw)
