August 2024 IKI Stable, But Weakening Production Threatens Industry Growth

Jakarta, INTI - The Industrial Confidence Index (IKI) for August 2024 shows stability, remaining at the expansion level of 52.4, similar to the level achieved in July 2024. However, this does not mask the reality that there is a significant slowdown compared to the August 2023 IKI figure, which reached 53.22. The Spokesperson for the Ministry of Industry, Febri Hendri Antoni Arif, stated that while the IKI remains stable, there are some indicators that warrant serious attention from industry players in the country.

One factor contributing to IKI stability is the contribution of 20 industrial subsectors that experienced expansion, accounting for 94.6% of GDP in the second quarter of 2024. However, this stability is overshadowed by the fact that the production variable still shows a significant contraction, dropping 2.90 points to 46.54. This indicates a decline in production across most sectors, while the new orders and product inventory variables increased.

Febri emphasized that this condition reflects companies still relying on stock to fulfill orders without increasing new production. This situation occurs across almost all subsectors, except for a few that still show expansion, such as the Textile Industry, Wood Industry, and Repair and Installation Services of Machinery and Equipment.

On the other hand, three subsectors experienced contraction in the August 2024 IKI, namely the Textile Industry, Paper and Paper Products Industry, and Other Manufacturing Industries. Febri explained that this contraction was caused by the inability of domestic products to compete with cheaper imported products, along with the decline in consumer purchasing power, which led consumers to choose more economical products.

Furthermore, some international cooperation schemes, such as the Regional Comprehensive Economic Partnership (RCEP), are considered to benefit foreign producers more, negatively impacting local industries. This situation is exacerbated by a decline in orders for certain products, such as musical instruments, false eyelashes, wigs, and ceramic tiles, in the Other Manufacturing Industries subsector.

A slowdown was also observed in the Beverage Industry due to the planned imposition of excise taxes on sugar-sweetened beverages. The Electronics and Cosmetics Industries also faced slowdowns due to the proliferation of imported products in the domestic market, resulting in low factory utilization rates.

External factors cannot be ignored, such as the weakening of the Purchasing Managers' Index (PMI) in major partner countries like China, the United States, and India. The rise in global gas prices in August 2024 and China's economic challenges, including rising unemployment and the risk of disinflation, also cloud the outlook for Indonesia's industrial sector.

However, despite the many challenges, there are some positive factors that helped maintain the IKI in August 2024. The decline in inflation trends, the rise in Japan's PMI, increased capital inflows, and the expectation of a reduction in the Federal Reserve's interest rates are some of the positive signs for industry players. Additionally, the rise in industrial exports in July 2024 and the increase in investment realization in the first half of 2024, which grew by 22.3% (yoy), also contributed to the stability of the IKI.

In anticipation of these challenges, the Ministry of Industry continues to undertake various efforts, including preparing a Draft Government Regulation (RPP) on Natural Gas for Domestic Needs, which is expected to be a "game changer" for Indonesia's manufacturing industry. This RPP is expected to ensure the availability of more affordable gas raw materials for the industrial and energy sectors.

The Ministry of Industry is also anticipating the impact of Government Regulation No. 28 of 2024 on the Implementation of the Health Law and the Plan to Implement Excise on Sugar-Sweetened Beverages and Certain Food Groups. Febri emphasized that the Ministry will continue to communicate with industrial business actors to ensure that policies adopted support the growth of the national industry.