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Indonesia's Manufacturing Sector Ends 2021 in Expansion Mode

Jakarta Globe
3 Jan 2022 | 12:23 WIB
Men works at a manufacturing plant in Karawang, West java on Oct 25, 2021. (B1 Photo/Mohammad Defrizal)
Men works at a manufacturing plant in Karawang, West java on Oct 25, 2021. (B1 Photo/Mohammad Defrizal)

Jakarta. Indonesia manufacturing companies have ended 2021 in an expansion mode, albeit at a slower pace due to further slow down in demand, according to the latest monthly report from research firm IHS Markit published on Monday. 

After reaching a three-month high of 53.9 a month earlier, the IHS Markit Indonesia Manufacturing Purchasing Manager Index (PMI) fell to 53.5 in December 2021. An index reading above 50 reflects expansion from the previous month, while below 50 means a contraction. 

Nonetheless, this was the fourth consecutive month of growth in industry activity following the relaxation of Covid-19 restrictions in previous months.

Companies surveyed by the research firm IHS Markit reported a further slowdown in the expansion, with new orders rising at the slowest rate in four months.


"The pace of recovery across the Indonesian manufacturing sector slowed in December," Jingyi Pan, the economics associate director at IHS Markit, said in a statement on Monday. 

"Although the output sub-index showed a sharper rate of growth for production, there was a further slowdown in the growth of demand, with total new work expanding at the softest pace for four months," Pan said. 

Employment remained stable while backlogs of work increased marginally last month, compared to the previous month.

In a positive development, output growth advanced to the third-fastest rate on record, foreign demand recovered quickly, and purchasing levels increased.

Meanwhile, supply chain pressure continued to mount as vendor performance continued to deteriorate. In terms of prices, input cost inflation reached its highest level in more than eight years, owing to higher expenses across a range of raw materials and higher shipping fees, while output charges increased at a more moderate pace.

"Persistent supply constraints remain a key concern for the Indonesian manufacturing sector, as vendor performance deteriorated further and companies reported steeper price
pressures, which had affected production at some firms. It will be important to monitor if this continues to affect production, or even affect the current growth momentum moving forward," Pan said.

Still, companies' attitude has improved due to the expectation that economic conditions will improve due to the easing of pandemic disruptions.

"[O]verall sentiment remained highly positive, with the level of business confidence above the long-run average to suggest that Indonesian manufacturers remain optimistic for continued growth in production over the course  of 2022," Pan said. 

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