Indonesia manufacturing activity falls back into contraction

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Indonesia’s manufacturing sector fell back into contraction in February, according to a closely watched gauge of business activity.

The Nikkei-Markit manufacturing purchasing managers’ index for Indonesia fell to 49.3 in February, back below the 50-point marker delineating activity growth from contraction in the sector, after rising to 50.4 in January.

Output decreased at Indonesia’s factories after returning to growth for the first time in four months in January. New orders followed suit, with about one in five companies surveyed reporting deteriorating purchasing power among customers. New export orders deteriorated for a fifth straight month, albeit at a less severe rate, as companies pointed to lacklustre demand abroad.

Staff numbers also fell for the fifth month running as input costs rose thanks to higher commodities prices, which some manufacturers attributed to a stronger US dollar. Despite slight overall growth in output prices, nine out of 10 companies surveyed reported no change in what they charged clients.

Markit economist Pollyanna De Lima said that while it still expected Indonesia’s economic growth to pick up marginally to 5.1 per cent in 2017, the strong start to the year among manufacturers had failed to last:

A lack of domestic demand coupled with weakness in global markets meant that opportunities to capture new work were scarce. Meanwhile, there was further despair on the employment front as staffing levels declined for the fifth straight month.

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