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Strong domestic demand boosts RI manufacturing sector
Indonesia's April PMI performance exceeds expectations as manufacturing activity continues to expand amid a slow global economy.
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ndonesia's manufacturing sector continued to improve in April, according to S&P Global's purchasing managers' index (PMI), following strong domestic demand that led to a significant boost in production activities.
The PMI, which surveys purchasing executives from more than 400 manufacturing companies to determine the state of business conditions, increased by 0.8 points to 52.7 in April compared with the previous month.
It marked the 20th consecutive month of expansion for the country's manufacturing sector as it maintains above 50 level, which means companies produce more and buy more inputs.
"The manufacturing sector continued to gain momentum after a relatively subdued start in 2023. Improved business conditions reflected stronger domestic demand, which led to the fastest rise in new orders and production volumes for seven months," said Tim Moore, economics director at S&P Global Market Intelligence, in a statement on Tuesday.
Industry Minister Agus Gumiwang Kartasasmita said the recent data proved Indonesia's manufacturing sector was much better off amid contraction in many developed countries, which saw their PMI fall below 50.
Japan, for example, scored 49.5 in the manufacturing index, while South Korea, the United Kingdom, France and Germany posted 48.1, 46.6, 45.5 and 44, respectively.
"Business players and investors in Indonesia remain optimistic and confident in running their businesses," Agus said in a statement on Tuesday.
Read also: Domestic Ramadan demand sustains RI manufacturing rally
Indonesia’s April PMI data also showed the pace of job creation hit its fastest in the past five months. Companies in Indonesia have been trying to boost production capacity in response to increasing production backlogs and improved sales projections.
Companies surveyed said they still saw a slight drop in new orders from abroad last month, due to suppressed business conditions in major export destinations, but strong domestic demand resulted in an overall robust improvement in manufacturing.
The operating expenses of manufacturing firms still rose in April due to higher raw material prices, but the inflation rate on inputs continued to ease, falling to its slowest pace since November 2020, which S&P’s Moore said “should help relieve pressure on operating margins”.
Moderate growth in the second semester
According to Banjaran Surya Indrastomo, chief economist at state-owned sharia lender Bank Syariah Indonesia, the improvement in PMI was caused by increased household consumption prior to Idul Fitri festive and the well-maintained inflation rate.
The positive trend would continue in the coming months, but with moderate growth, he said.
"We project the PMI to hover at 53.1 in the second semester this year, fuelled by improved buying power and a well-controlled domestic inflation rate," Banjaran told The Jakarta Post on Tuesday.
Statistics Indonesia (BPS) said inflation dropped to an 11-month low of 4.33 percent in April, and continued to be slower than previous months.
Despite April's expansion, the manufacturing sector still faces some challenges, such as a drop in demand from countries with a high recession risk, he said, adding that increased global financial risks may also affect Indonesian exports.
"The manufacturing industry needs to find new target markets, especially countries with a low recession risk," Banjaran stated.
Read also: Manufacturing closes 2022 on high note, opens 2023 upbeat
Josua Pardede, chief economist at private lender Bank Permata said Indonesia's April PMI was quite surprising and exceeded expectations, arguing that manufacturers usually expected to see a seasonal drop in activity in April due to the long holiday.
"This is a positive indication for the economic conditions at the beginning of the second quarter this year. Especially with S&P Global's note that manufacturing activity continued to increase, pushed by strong domestic demand," Josua told the Post on Tuesday.
Mirae Asset Sekuritas’ senior economist Rully Arya Wisnubroto also called the recent PMI manufacturing results a “positive surprise”, as the country had seen imports slow over the past few months.
“I’m optimistic that Indonesia’s PMI will consistently show expansion,” Rully told the Post on Tuesday.
Meanwhile, the Industry Ministry's Industry Confidence Index (IKI), which measures parameters similar to the PMI, albeit with different methods, showed a drop despite remaining in expansion territory. It decreased by 0.49 points to 51.38 in April from 51.87 in March.
Febri Hendri Antoni Arif, spokesperson for the Industry Ministry, said the trend was seasonal and would bounce back next month. April’s IKI drop was due to contraction in several sub-sectors with a significant share of the country’s GDP, he said.
