Indonesia's manufacturing industry started the second quarter of 2017 on a strong footing as companies scaled up production for the second straight month in April to match growing demand, the Nikkei Indonesia Manufacturing Purchasing Managers' Index survey showed. (GA Photo/Mohammad Defrizal)

Manufacturers See Strongest Production Rise Since Mid-2016

BY :TABITA DIELA

MAY 02, 2017

Jakarta. Indonesia's manufacturing industry started the second quarter of 2017 on a strong footing as companies scaled up production for the second straight month in April to match growing demand, the Nikkei Indonesia Manufacturing Purchasing Managers' Index survey showed.

Output expanded the strongest since June last year amid improved demand, which was evident from the launch of new products, higher order books and increasing export orders.

"Another positive development shown by the Purchasing Managers' Index survey came from a turnaround in new export orders, which increased in April for the first time since last September," Pollyanna De Lima, an economist at London-based financial services company IHS Markit, said in a note on Tuesday (02/05).

The PMI – a composite of manufacturing output, new orders, exports and employment measures to give a snapshot of business conditions in the manufacturing sector – rose to 51.2 in April from 50.5 in March.

PMI readings above 50 indicate an overall increase in manufacturing output while otherwise indicate a drop.

"The upswing in output was, however, insufficient to generate jobs, while there remained evidence of spare capacity," De Lima said, noting that April's headcount drop had slowed to the worst since November.

De Lima said companies may look to hire more workers in the near term if demand is sustained.

Input purchases also increased last month due to higher order books combined with efforts to build stock.

Manufacturers faced higher input costs for chemicals, metals, oil, plastics and textiles last month due to a weaker rupiah against the US dollar.

"Goods producers sought to share with their clients the additional cost burden, as highlighted by the strongest increase in factory gate charges in 16 months," De Lima said.

Survey participants said holdings of finished goods declined as they use stocks for orders, lowering post-production inventories "modestly" at a slower pace compared to March.

The companies also upgraded machinery in attempts to complete unfinished orders, causing a decline in work backlogs.

Despite the positive readings, De Lima said inflationary pressures due to the rupiah's depreciation against the dollar threaten the outlook for Indonesia's manufacturing sector.

The Central Statistics Agency (BPS) reported on Tuesday that the annual inflation rate increased to 4.17 percent in April, its highest since March last year.

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