RI manufacturing worst since pandemic

Jakarta, CNBC Indonesia– Indonesia's manufacturing activity will contract again in September 2024. This contraction extends the correction period of Indonesia's manufacturing industry to three consecutive months.

Purchasing Managers' Index (PMI) data released by S&P Global today, Tuesday (01/10/2024), shows that Indonesia's manufacturing PMI contracted to 49.2 in September 2024 This means that the Indonesian manufacturing PMI experienced contraction for three consecutive months, notably in July (49.3), August (48.9) and September (49.2).

The PMI recorded at 49.2 in September 2024 was indeed lower than that of August. However, this condition does not ignore the fact that the current situation of Indonesia's manufacturing industry is very bad.

The last time Indonesia recorded a contraction in the manufacturing sector for three consecutive months was at the start of the Covid-19 pandemic in 2020 or four years ago when economic activity was forced to slow down. stop to reduce the spread of the virus.

At the start of the pandemic, the PMI experienced contractions for four consecutive months, notably in April-July 2020.
The contraction of the manufacturing PMI for three consecutive months in July-September 2024 is also a bad mark for President Joko Widodo (Jokowi) before his resignation on October 20.
PMI uses the number 50 as a starting point. If it is above 50, it means that the business world is in the expansion phase. Below that means contractions.

S&P explained that the contraction in Indonesia's manufacturing sector was triggered by a drop in demand. This condition leads to an increase in the stock of goods in the warehouse. The company also reduced its purchasing activities in response to weakening market demand.

Paul Smith, director of economics at S&P Global Market Intelligence, said the contraction in Indonesia's manufacturing PMI was due to weak foreign demand due to the weak global economy.

Weak global manufacturing demand weighed on overseas sales. New export orders have even fallen for seven consecutive months and reached their lowest level since November 2022.

“The lackluster performance of the Indonesian manufacturing sector is closely linked to global macroeconomic conditions which are generally sluggish. Companies have responded by reducing their purchasing activities and preferring to use their inventories and maintain their costs and operational efficiency,” said Paul on their official website.

Amid sluggish demand, input costs for goods have actually increased significantly due to unfavorable exchange rates. Inflation, which continues to fall to its lowest level in a year, is even less able to reduce input costs.

However, for the first time since June 2023, the company has chosen to slightly reduce producer prices.

S&P also reported a moderate decline in production and new orders hampered purchasing activity, so purchases fell for the third consecutive month. Companies then prefer to use their stocks of raw materials.

Delays in the delivery of ordered goods also occur. This is reflected in the longer average delivery time for three consecutive months. The difficulty of shipping by boat also leads to an increase in stocks of goods in warehouses.

Positive news is that the company is starting to recruit staff. Despite less than encouraging operational conditions, the company added staff in September.

This is the first time that there has been an addition of staff in the last three months. This measure was taken because business people are optimistic that economic conditions will improve in the future.

“Companies are increasing the number of employees because they hope for a better future. Hoping for a more stable operating environment and better economic conditions in the coming year, business confidence has reached its highest highest level in seven months,” Paul said.

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