The government may increase cigarette excise to boost state revenue this year. (GA Photo/Mohammad Defrizal)

Manufacturing Woes Continue Amid Weak Demand, Depreciating Rupiah


OCTOBER 02, 2015

Jakarta. Indonesia's manufacturing sector continued to deteriorate in September, as the number of new production orders contracted amid weak global demand and rising costs have pushed businesses to cut jobs.

The country's Nikkei manufacturing purchasing managers’ index  ̶  a composite single-figure indicator of manufacturing performance  ̶  dropped to 47.4 in September, compared to 48.4 a month earlier, according to a survey brief published by global research firm Markit and Nikkei.

A reading below 50 reflects an increasing rate of contraction in the sector.

“Dismal PMI data for Indonesia show sharper declines in new work, employment and production at the end of third quarter," wrote Pollyanna De Lima, a Markit economist wrote in the report.

"Manufacturers struggled to secure new work amid a difficult economic climate and production was scaled back again," De Lima said.

Manufacturers must also bear higher costs of raw materials due to inflation and the weakening rupiah, the report showed.

Inflation eased to 6.8 percent last month from 7.2 percent in August, but it has yet to return to the 4.5 percent level of the same month last year.

The rupiah has declined 18 percent so far this year to trade at 14,645 against the Us dollar on Friday, reaching a level last seen 17 years ago.

The report also indicated that employment in manufacturing continues to decline as manufacturers reported lower workloads.

"The sector’s employment situation is alarming; with job shedding in September accelerating to a pace broadly similar to July’s survey record," De Lima said.

More than 62,000 people lost their jobs during  the January-September period, according to data from Confederation of Indonesian Workers Unions (KSPSI).

"This has reached a very dangerous level," warned KSPSI chairman Yoris Raweyai on Thursday.

Ciggarrete makers in East Java are among those to cut the most number of jobs, Yoris said.

Gudang Garam has fired 6,000 employees; HM Sampoerna ,12,000; and Bentoel Internasional Investama has let go of 1,000 workers, he said.

With additional reporting from the Investor Daily