Jakarta. Indonesian manufacturers scaled up output in January due to a rebound in new orders, indicating that the health of the industry has improved after months of contraction, the Nikkei Indonesia Manufacturing purchasing managers' index survey revealed.

The PMI — a composite of manufacturing output, new orders, exports and employment measures to give a snapshot of manufacturing business conditions — increased to 50.4 in January, up from 49 in December.

"PMI data showed that the upturn was domestically driven as new export orders dipped again," Pollyanna De Lima, an economist at IHS Markit, said in a note on Wednesday (01/02).

A reading above 50 indicates a increase in overall manufacturing activity and, inversely, index of below 50 reflects decline.

The survey participants — which include over 300 industrial companies — said that increased marketing and client confidence resulted in a rise in orders despite a contraction in export orders from international clients for the fourth straight month.

Inventory of manufactured goods remained unchanged according to survey participants. However, pre-production inventory fell as new orders were obtained.

Participants postponed buying input materials due to a sharp increase in costs. The note underlined that average raw materials costs rose in January. Some companies compensated by passing the cost burden to clients, which resulted in an increase in retail prices.

Employment also slightly fell in January on the back of technological advancement in some factories and a constant outstanding business decreased for the thirty-second consecutive month.

"Looking ahead, the trend for trade will remain challenging given so much uncertainty in the global economy," De Lima said.

Still, the economist noted that Bank Indonesia's lower interest rates will be able to "fuel" consumer spending.

Overall, manufacturers' sentiment improved in January, the note said, with 82 percent of the survey participants expecting higher output in the year ahead.