Indonesia's manufacturing sector continues to expand
Indonesia's manufacturing sector continues to expand. According to the latest global report released by Standard & Poor's, Indonesia's manufacturing purchasing managers' index reached 54.2 in March 2024, up 1.5 points from 52.7 in February and a new high in nearly three years.
Indonesian Industry Minister Agus Gumiwan Katasasmita said that Indonesia's manufacturing industry has been in the expansion range for 31 consecutive months, which is consistent with the Indonesian industrial confidence index in the expansion state during the same period. Indonesia's industrial confidence index for March 2024 reached 53.05, an increase of 0.49 points from February's 52.56.
The S&P Global report said the growth in Indonesia's manufacturing purchasing Managers Index was driven by high demand. Puliana de Lima, associate director of global markets economic intelligence at Standard & Poor's, said Indonesia's output growth reached its highest level in March thanks to a surge in domestic demand. Most companies meet the increase in demand by purchasing additional raw materials, encouraging production capacity and increasing product inventories.
The Indonesian business community expects that strong domestic demand will keep Indonesia's manufacturing sector at an expansion level in 2024. Sinta Kamdani, general chairman of the Indonesian Employers Association, said that business participants are optimistic about the expansion of performance this year, and it is expected that the manufacturing purchasing managers index will continue to be in the expansion range for the whole year. The March-April period will see "extraordinary" growth, supported by seasonality and Eid spending.
Agus said earlier that Indonesia's manufacturing sector is on track to reach its target of 5.8 percent growth in 2024. The contribution of manufacturing industry to Indonesia's GDP has always played an important role, reaching 16.83% in the third quarter of 2023; During the same period, the growth rate of the manufacturing industry reached 5.02%, exceeding the 4.94% growth rate of the national economy in the same period. He said Indonesia's manufacturing sector can continue to grow.
To achieve this goal, the Indonesian Ministry of Industry has taken a series of measures, including implementing various priority programs in 2024, in an effort to develop national industries, Such as competency-based vocational education and training, equipment restructuring programs for small and medium-sized industrial players, growth and development programs for new entrepreneurs, support for technology-based start-ups, increased value-added and industrial competitiveness through the domestic component level certification program, and subsidies for the purchase of electric vehicles.
Manufacturing is also the largest contributor to Indonesia's exports, Agus said. From January to November 2023, Indonesia dominated exports of manufactured goods, valued at more than $17.123 billion. Relevant data show that Indonesia has ranked among the world's top 10 manufacturing product contributions, and is the only ASEAN country on the list. Indonesia accounts for 1.4 per cent of the world's manufactured goods, according to survivalglobal.com, a significant improvement from 16th place in the global rankings four years ago.
According to the "Sector Core Economic Outlook 2024" released by the Indonesian Center for Reform and Economy, Indonesia's current manufacturing output reaches $241 billion, making it one of the 10 countries with the largest manufacturing output in the world. Inna Primiana, an economist at the center, said Indonesia's manufacturing expansion was indeed strong, with the manufacturing purchasing managers' index higher than many countries.
Even so, the S&P does not tell the whole story of Indonesia's manufacturing sector. Yusuf Lundi Manilet, an economist at Indonesia's Center for Economic Reform, said "caution is needed" in interpreting the manufacturing PMI because it does not fully describe the state of all subsectors of Indonesia's manufacturing sector. He said the manufacturing expansion in March 2024 was limited to certain manufacturing sub-sectors, such as the food and beverage sector, which was driven by demand during the upcoming Ramadan and Eid al-Fitr periods.
The closure of many industries, especially labor-intensive factories, also illustrates this point. Firman Buckley, executive director of the Indonesian Footwear Association, said that Indonesian shoe companies have been adversely affected by many factors, including the decline in demand caused by the epidemic and geopolitical turmoil. At present, the capacity utilization rate of the Indonesian shoe industry is still below 50%. Redma Jeta Villavasta, general chairman of the Indonesian Fiber and Filament Manufacturers Association, said that the import restriction policy more or less stimulated the downstream industry in March, but the recovery of the upstream and midstream industry still takes time, and the improvement signal in the textile industry has not directly improved industrial productivity, the current average capacity of the textile industry is 55%, "there are still layoffs every week." Many factories closed."
At the same time, the industry is also cautious about the prospects for manufacturing expansion. Mr Cinta said that while he was optimistic that the manufacturing sector would continue to expand, he did not think industrial earnings growth would be as high as in March-April. From the end of April to the end of the year, corporate earnings expansion will moderate. Fajal Budiono, secretary-general of the Indonesian Olefins, Aromas and Plastics Industry Association, said that industrial performance will slow in the middle of this year due to weak demand after Eid al-Fitr and into the New Year. This means that only a few sectors are doing well, especially school equipment and supplies.
Puliana also noted that while some companies believe demand will continue to improve in the coming months, others are skeptical it will last much longer. Some companies are preparing to increase production and inventories but are reluctant to hire additional workers, she said, adding that there are still factors holding back job growth and some companies are concerned that March's high sales trend won't last long.
In the face of this situation, the Indonesian industry calls on the government to take the opportunity to introduce pro-industrial policies to translate the optimism reflected in the manufacturing purchasing managers Index into practical action. Bob Asom, chairman of the employment department of the Indonesian Employers Association, said that the manufacturing industry in the expansion range is a strong indication that Indonesian industry is in a sustainable industrialization state, which is worth celebrating, but the excellent performance of the manufacturing purchasing managers index must be accompanied by the government to take strategic steps through various policies conducive to the growth of the industrial sector in order to better drive the growth of the national economy.
Bob stressed that cross-sectoral cooperation is very important, and policies in other sectors such as taxation, ease of trade, and movement of goods are among the factors contributing to the growth of Indonesia's real sector. He said the industrial sector does not operate in isolation and is influenced by other policies such as trade, finance and, most importantly, employment indicators.
Kiki Velico, an economist at the Institute of Economics and Community Research at the University of Indonesia's School of Economics and Business, also stressed the importance of sectoral coordination to maintain manufacturing growth, such as not having a situation where industrial policy is supportive but trade and investment policy is not, which would be troublesome. He said that special attention should be paid to addressing four issues, namely institutional and environmental quality, environmental and social factors, the number and productivity of young people, infrastructure and logistics prices.