Indonesia's manufacturing industry contracted in February amid a decline in new orders from abroad which led businesses to lower output, scale down production and cut back on employment, the Nikkei Indonesia Manufacturing purchasing managers' index survey revealed. (Suara Pembaruan Photo/Joanito de Saojoao)

Indonesia's Manufacturing Industry Contracts in February: PMI Survey

BY :TABITA DIELA

MARCH 02, 2017

Jakarta. Indonesia's manufacturing industry contracted in February amid a decline in new orders from abroad which led businesses to lower output, scale down production and cut back on employment, 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 — decreased to 49.3 in February, down from 50.4 in January.

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

"Despite the economic rebound seen at the start of 2017, the Indonesian manufacturing industry is back in the red," Pollyanna De Lima, an economist at IHS Markit, said in a note on Wednesday (01/03).

"The lack of domestic demand coupled with weakened global markets means that opportunities to capture new work were scarce," De Lima said.

New export orders decreased for the fifth consecutive month in February.

The survey participants — which include over 300 industrial companies — said that they likely received less new export orders as a result of weakened purchasing power due to challenging global economic conditions.

Weak external demand also forced businesses to scale down production and lay off workers. Factory output, consequently, also fell in February.

The survey pointed out that input costs rose as a result of the rising cost of commodities due to the stronger United States dollar. Factory gate charges — the cost of manufacturing goods, including labor cost, raw material, energy and other indirect costs such as loan interest, maintenance cost and rent before any markup to give profit — rose for the sixth successive survey period.

Despite this, input buying levels remained unchanged in February.

"Hopes of increased demand and expansion plans undermined manufacturers’ confidence for the year ahead," the report showed.

IHS Market expects that economic growth will reach 5.1 percent this year, up from 5 percent last year, hoping that fiscal policies will stimulate the economy, support domestic demand and attract foreign investment.

SHARE