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leading pointer of Indonesia'€™s manufacturing strength fell for the first time in 12 months in a sign that once-resilient local businesses are beginning to feel the pinch of lower external demand and a slowdown in the domestic economy.

The purchasing managers index (PMI), a health indicator of the manufacturing sector, fell to 49.5 in August, according to a survey released by HSBC Bank on Monday.

A level below 50 signals economic contraction, when companies are less upbeat about the economic outlook, while a number above that threshold reflects a growing demand in the economy, as local businesses opt to expand and boost their purchases of new orders.

It was the first time Indonesia saw a PMI contraction in a year. In the previous reading in July, Indonesia'€™s PMI had reached a record high level of 52.7.

As for the most recent data from August, all the PMI subcomponents registered below the 50 score, indicating broad-based deterioration in operating conditions in Southeast Asia'€™s largest economy, the HSBC report said.

The subcomponents included output, new orders, the employment index, suppliers'€™ delivery times and stockpiles of purchases.

'€œThe deterioration in manufacturing sector conditions in August is surprising, particularly considering how strong the PMI had been in the prior three months,'€ said Lim Su Sian, a Singapore-based economist with HSBC Bank.

However, she explained that a short spell of softer manufacturing conditions might not necessarily be bad for the economy, as it could help rein in imports that had weighed heavily on Indonesia'€™s widening current-account deficit.

'€œDespite the subdued August print, however, there were indications that this may be a temporary lull in conditions,'€ Lim said.

Some businesses, she pointed out, opted to accumulate their inventories not because they had pessimistic views on the economy, but rather as anticipative measures for stronger demand in coming months.

Despite tighter monetary conditions, Indonesia'€™s PMI had expanded over the past year as the country'€™s resilient domestic demand helped to keep local companies afloat amid a weak external environment that put pressure on overseas shipments.

But the latest PMI prints might suggest that local businesses are not oblivious to recent economic developments since they have begun to feel the pinch of a slowdown in both external and domestic economies, said Sofjan Wanandi from the Indonesian Employers'€™ Association (Apindo).

'€œThe tight monetary policy implemented by Bank Indonesia has begun to affect the cash flows of local companies, some of which are now lagging in terms of their payment obligations [to clients],'€ he said by phone on Monday.

'€œMeanwhile, the weak external environment has also affected our exporters, most of which now are in an overproduction situation where there is not enough demand overseas to meet our production,'€ added Sofjan.

The PMI is also used as a leading indicator for the outlook of economic growth, with the latest contraction in the index likely to signal deceleration in Indonesia'€™s household consumption, investments and exports: the three major drivers of the domestic economy.

Gross domestic product (GDP) growth in Indonesia had already slowed to 5.1 percent in the second quarter, its slowest rate of economic expansion in almost five years.

In several countries across Europe and Asia, factory activity cooled in August after a strong showing in July, as new orders dwindled in the face of escalating tensions in Ukraine and a patchy recovery in China, their PMIs showed, as reported by Reuters.