Jakarta. Indonesia's manufacturing industry contracted in December amid a decline in output and new orders from abroad, leading businesses to scale down production and cut back on employment, the Nikkei Indonesia Manufacturing purchasing managers' index survey revealed on Tuesday (02/01).
The PMI – a composite of manufacturing output, new orders, exports and employment measures that provides a snapshot of business conditions in the country's manufacturing sector – fell to 49.3 from 50.4 in November. The index is at its lowest reading since July.
"The latest data indicates that subdued client demand led to renewed falls in both output and new orders," IHS Markit economist Aashna Dodhia said in a statement.
The new exports decreased for the first time in five months due to falling international demand, forcing businesses to scale down production and lay off workers.
Suppliers also faced difficulties in transporting materials due to road repairs and natural disasters, causing firms to raise their average selling prices.
The survey showed that input costs rose as a result of the rising cost of raw material prices due to a weakened rupiah. Aashna noted that currency depreciation will continue in the coming months, which will intensify cost pressures next year.
Despite this, purchasing power increased even though growth was only marginal. Business confidence in the future was also at its strongest since June, thanks to forecasts of improved demand condition, new products, new strategies and planned business expansions.
"On the bright side, the future output index signaled the strongest degree of optimism toward the 12-month outlook since June," Aashna said.