Bank Indonesia’s (BI) Prompt Manufacturing Index (PMI-BI), a gauge of factory activity, is expected to drop to 49.89 percent in the July-September period this year, lower than the 51.45 percent and 50.01 percent recorded in the second and first quarter, respectively. A reading above 50 indicates expansion and below 50 indicates contraction.

The BI business activity survey’s (SKDU) net weighted balance (SBT) — an indicator used to project business sentiment — is also expected to drop to 9.77 percent in the third quarter, lower than the 18.98 percent recorded in the second quarter this year, as a result of PPKM Darurat. 

“BI will continue to monitor the impacts of PPKM Darurat, which will potentially affect the PMI in the next quarter. The PMI-BI decline will likely be caused by a decrease in production volume, goods stock volume and manpower,” the central bank said in a press statement on Wednesday.

Most manufacturing subsectors are predicted to slow down, such as paper and printing, food and beverages, tobacco, transportation equipment, as well as machinery and equipment.

Last year, the PMI-BI fell to a historic low of 28.55 percent in the second quarter as a result of three months of large-scale social restrictions (PSBB), which forced factories to halt production and retail stores to close temporarily.

However, factory activity picked up in the third quarter of 2020 and the trend continued until June this year, BI data shows.

BI wrote in a separate statement on Wednesday that the SBT was expected to go down in the third quarter as the trade, hospitality, restaurant, finance, real estate and corporate services industries experience muted growth because of the PPKM Darurat policy. Meanwhile, the processing, agriculture, plantation, livestock, forestry and fisheries industries will likely see a contraction in business activity.

Center of Reform on Economics (CORE) Indonesia research director Piter Abdullah projects that manufacturing activity would continue to contract, and business confidence would decrease if the emergency restrictions were to be extended for more than two months.

“If PPKM Darurat ends in August, I expect the PMI-BI to rebound to above 50 percent by year-end. But of course, this is hard to predict,” he told The Jakarta Post in a text message.

The restrictions are currently slated to last two weeks, but Finance Minister Sri Mulyani Indrawati recently said the government was mulling over the option to prolong the policy to four to six weeks — ending in mid-August at the latest — to further curb the spread of COVID-19.

The government has slashed the country’s gross domestic product (GDP) growth projection to between 3.7 and 4.5 percent from the initial target of between 4.5 and 5.3 percent for this year because of the rapid spread of the Delta variant.

However, Industry Minister Agus Gumiwang Kartasasmita said he was optimistic the country’s industries would continue to grow, as Indonesia’s manufacturing purchasing managers’ index (PMI), a gauge of factory activity based on a monthly survey of 400 manufacturers, had grown steadily over the past few months.

According to the manufacturing PMI, which is compiled by business consultancy IHS Markit, Indonesia’s factory activity stood at 53.2 in June, lower than the record-high of 55.3 a month earlier.

“Our PMI was a little lower in June due to PPKM Darurat, but industries will keep going strong because our PMI was always above 50 points in the last eight months, which shows that businesses are optimistic,” he said in an online discussion hosted by Investor Daily on Wednesday.

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