Indonesia Manufactures Expand at Record Pace in October as Covid-19 Restriction Eases

Jakarta. Indonesian manufacturing sector has expanded at a record pace in October from a month earlier following the government decision to ease the Covid-19 restrictions, according to a survey from research firm IHS Markit released on Monday.

The IHS Markit Indonesia Manufacturing Purchasing Managers’ Index rose to 57.2 in October, increasing for the second straight month from 52.2 in September. A reading above 50 suggests the sector expands compared to the previous month; on the contrary, a reading below 50 reflects contraction. 

October's figure was the highest reading since the survey began in April 2011, the research firm said in a statement. 

“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-19-19 restrictions," Jingyi Pan, economics associate director at IHS Markit said. 

“The increases in demand and output also translated to better manufacturing sector confidence, as seen both through the Future Output Index and in firms’ buying and hiring activity, all positive signs for the sector going forward," Pan said. 

“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,” she said. 

In October, both new work and output expanded at record rates, IHS Markit said. Anecdotal evidence suggested improving the Covid-19 situation, along with additional relaxation of limitations, aided demand growth and economic recovery, the research firm said. But, albeit little, overseas demand fell again. 

Indonesia reported only 29,254 new cases and 1,466 deaths in October, its best monthly Covid-19 handing since June last year. During the peak last July, Indonesia reported more than 1.2 million new cases and more than 35,000 deaths in the month.

Since the beginning of last month, the government started to allow shopping centers markets, and movie theaters across the country to reopen gradually, boosting the consumer's demand. 

Given the better overall demand, manufacturers increased their staff for the first time in four months. Work backlogs grew in October, though at a slower pace than in September. In October, manufacturers increased their stock purchasing, reflected in both quantity and value. Conversely, rising demand and input shortages reduced post-production inventory levels.

On the gloomy side, vendor performance in October was affected by supply constraints and delivery challenges. 

Stronger demand exacerbated and supply problems lead to rising input prices, according to Indonesian manufacturers. Many cited rising raw material costs as the reason for the increase in input cost inflation. The outcome was higher consumer costs, which fueled an increase in product prices, but the pace has eased since September. 

In October, overall business sentiment strengthened, rising above the series average, as interruptions caused by Covid-19 have eased, according to survey respondents.