Indonesia's July 2024 PMI Plummets: Is the Manufacturing Industry Facing a Crisis?

Jakarta, INTI - The Purchasing Managers' Index (PMI) for Indonesia in July 2024 recorded a drastic decline, falling to 49.3, significantly down from 50.7 in June 2024. This marks the lowest point of the year, indicating that Indonesia's manufacturing sector is experiencing serious contraction. A PMI below 50 is generally considered an indicator of a decline in manufacturing activity.

In the first seven months of 2024, Indonesia's PMI has been on a downward trend, showing increasing pressure on the manufacturing sector. Compared to January 2024, the July 2024 PMI has dropped by 3.6 points from 52.9. This decline is primarily driven by weakening domestic and foreign demand, as well as decreasing output.

Factors Contributing to the PMI Decline

One of the main factors behind the PMI decline is weakening domestic demand, which fell below the expansionary level, from 50.4 in June 2024 to 48.7 in July 2024. This suggests that domestic consumption is slowing down, which could be a sign that the purchasing power of the population is beginning to wane.

Foreign demand is equally concerning. New Export Orders fell from 49.3 in June 2024 to 48.9 in July 2024. This decline reflects that the competitiveness of Indonesian manufacturing products in the global market is also weakening, potentially due to factors such as rising production costs or global economic uncertainty.

Along with the decline in demand, manufacturing output has also contracted. In July 2024, output fell to 48.8 from 51.4 in the previous month. This reduction in output is directly proportional to the decline in demand, resulting in slower production activities and decreased corporate profits.

Impact of PMI Decline on the Industry

This significant decline in PMI clearly impacts various aspects of the manufacturing industry. One of them is the reduction in purchasing activity, which fell to 49.8 from 51.7 in the previous month. This indicates that companies are beginning to reduce raw material purchases due to weak demand prospects.

The decline in purchasing activity has also affected inventory levels, which decreased from 51.7 in June 2024 to 50.4 in July 2024. This reduction in inventory indicates that companies are becoming more cautious in managing their stock to avoid excess inventory, which could erode profit margins.

Furthermore, the decline in demand and output has led to an accumulation of finished goods in warehouses. Stocks of Finished Goods rose from 48.5 in June 2024 to 52.8 in July 2024. This suggests that the products being produced are not being absorbed by the market, which could become an additional burden for companies in the long term.

The decline in manufacturing performance has also impacted employment. In July 2024, employment in the manufacturing sector fell to 48.7 from 50.1 in the previous month. Many reports indicate that employee contracts are not being renewed, which could increase unemployment in this sector.

Future Prospects

Despite the concerning performance of PMI in July 2024, business confidence in the outlook for the manufacturing sector over the next 12 months remains positive. The business expectations index rose significantly to 75.4 from 69.3 in the previous month, indicating that businesses are still optimistic about economic recovery in the future.

However, to achieve this recovery, the government and industry players need to work together to address various challenges, such as boosting consumer purchasing power, encouraging exports, and increasing production efficiency. Without concrete steps, the risk of a crisis in the manufacturing sector will continue to grow.