Riders tried to cross a flood in Dayeuhkolot, Bandung, West Java on Monday (14/11). (Antara Photo / Fahrul Jayadiputra)

Indonesian Manufacturing Industry Remains in Contraction: Survey


DECEMBER 01, 2016

Jakarta. Indonesia's manufacturing industry is in contraction for the second consecutive month as producers have reduced output due to weak demand and the depreciating rupiah — which has increased costs — the Nikkei Indonesia Manufacturing purchasing managers' index, or PMI, survey revealed.

The PMI — or a composite of manufacturing output, new orders, exports and employment measures to give a snapshot of manufacturing business conditions — inched up to 49.7 in November, compared to 48.7 in October. Any readings below 50 indicate an overall decrease while any figure above 50 indicates an overall increase.

"On a positive note, rates of reduction softened and the sector moved close to stabilization," Pollyanna De Lima, an economist at IHS Markit, said in a statement on Thursday (01/12).

De Lima said the panelists blamed a mix of flood-related issues and subdued demand from both the domestic market and abroad for the back-to-back contraction in orders and output among manufacturers.

Net exports also fell at its fastest rate since July.

Businesses were struggling to maintain costs due to the weakened rupiah against the United States dollar in November, boosting the price of imported raw materials. Some chose to pass the burden on to customers, while others absorbed the costs to maintain competitiveness.

The rupiah has fallen nearly 4 percent over the month and traded at 13,563.00 against the greenback on Wednesday, according to Bank Indonesia's Jakarta Interbank Spot Dollar Rate.

"As we head towards the year end, manufacturers may be prepared to loosen their pricing policies in order to secure more work," De Lima said.

Employment numbers, fortunately, were broadly unchanged since last month. Purchases also increased amid heavy rain and floods that weighed on vendors' performance.