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Manufacturing activity reaches record-high in October
Manufacturing activity in Indonesia has reached a record-high, but supply shortages are causing concern about rising input costs.
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Manufacturing activity in Indonesia has reached a record-high as COVID-19 curbs are eased and the year-end spending season nears.
Business information provider IHS Markit reported on Monday that Indonesia’s manufacturing Purchasing Managers’ Index (PMI) rose to 57.2 in October, the highest level since the index started in 2011.
The latest reading marks further improvement in factory activity after the index fell to 40.1 in July, when the government imposed restrictions on business, travel and leisure activity to contain the Delta wave of the coronavirus pandemic.
“The Indonesian manufacturing sector saw the fastest growth on record, according to the latest IHS Markit Indonesia Manufacturing PMI, which reflected improvements brought about by the further easing of COVID-19 restrictions,” Jingyi Pan, economics associate director, was quoted in a press release as saying.
The manufacturing sector is the largest contributor to Indonesia’s economy, and the index usually moves in the same direction as the country’s economic growth.
Manufacturers reported record-high expansion in new work and output, according to IHS Markit. In response to stronger demand, businesses expanded their workforces for the first time in four months.
But foreign demand contracted, in line with constraints on shipping. Manufacturing exports fell 5.29 percent month-to-month (mtm) to US$15.51 billion in September, Statistics Indonesia (BPS) data show.
Read also: Exports, imports fall in September as trade slows down
Supply shortages led to higher raw material cost for manufacturers, forcing them to pass the higher costs on to consumers. IHS Markit reported that input cost inflation rose to the highest level in eight years.
“Supply constraints persisted, however, with firms seeing an increase in price pressures and longer lead times in October. While this is not unique to Indonesia, it will be worth watching whether supply issues will dampen the economic recovery in the months ahead,” Pan said.
However, overall business sentiment improved as manufacturers were expecting improvements in the economic conditions as the pandemic disruptions eased.
Fiscal Policy Agency (BKF) head Febrio Kacaribu said the business sentiment underscored the need for the government to keep cases low as the Christmas holiday season was approaching.
“The fall in COVID-19 cases led to an easing of activity restrictions, causing manufacturing activity to rise in October,” Febrio was quoted in a press release as saying on Monday.
