Indonesia's Manufacturing Performance Continues to Decline, July 2024 PMI Hits Record Low

Jakarta, INTI – Indonesia's manufacturing sector continues to face significant pressure, recording a sharp decline in the Purchasing Managers' Index (PMI) for July 2024. According to the latest report from S&P Global, Indonesia's PMI dropped to 49.3, marking the deepest contraction this year. This figure is lower than June's reading of 50.7, indicating that Indonesia's manufacturing sector has once again fallen below the expansionary threshold (a value of 50).

This decline reflects a negative trend that has been ongoing since the beginning of the year. In the first seven months of 2024, Indonesia's PMI has shown a weakening tendency, with a decrease of -3.6 points compared to January 2024, which recorded a PMI value of 52.9. This data serves as a warning signal about the serious challenges faced by Indonesia's manufacturing sector.

Factors Behind the PMI Decline: Sharp Drop in Demand and Output

The sharp decline in July 2024's PMI was driven by various factors, particularly the drop in domestic and foreign demand as well as a significant reduction in output. Domestic demand, which has slowed, is reflected in the value falling to 48.7 from 50.4 the previous month. This situation is also evident in the contraction of foreign demand, with the Net Export Orders index dropping to 48.9 from 49.3 in June 2024.

Alongside the decline in demand, output also saw a significant decrease. In July 2024, the output value registered at only 48.8, much lower than June's 51.4. This sharp drop reflects suboptimal production conditions due to declining demand volumes, both domestically and abroad.

Reduced Purchasing Activity and Increased Stock Levels

With the decline in demand, purchasing activity by manufacturing companies was also affected. In July 2024, purchasing activity fell to 49.8 from 51.7 the previous month. Compared to January 2024, purchasing activity has seen a significant decline of -5.8 points. The purchasing stock also decreased, reaching 50.4 from 51.7 in June 2024, a decrease of -3.1 points compared to January 2024.

Conversely, the decline in demand and output has led to an increase in finished goods inventory in warehouses. Stocks of Finished Goods rose to 52.8 from 48.5 the previous month, indicating a growing stockpile of unsold products. Additionally, supplier delivery times slightly slowed down, with the Supplier Delivery Time index dropping to 48.8 from 50 in June 2024.

Impact of Exchange Rates and Rising Input Prices

The continued weakening of the exchange rate has added additional pressure on the manufacturing sector, with input prices rising. In July 2024, input prices increased to 58.7 from 59.5 the previous month. This price increase has impacted output prices, which also slightly rose to 52.9 from 51.9 in June 2024.

The declining demand volumes have also affected employment absorption rates, which fell to 48.7 from 50.1 in June 2024. Many reports indicate that employee contracts were not renewed, adding to the challenges faced by Indonesia's manufacturing sector.

Business Confidence Remains High Amid Uncertainty

Despite the PMI showing a significant decline, business confidence in the future of the manufacturing sector remains high. In July 2024, the business expectations index reached 75.4, the highest since March 2024. Business owners are optimistic that sales volumes will improve and market conditions will strengthen in the coming year.

This optimism is reflected in the Future Output or Activity Index, which reached 75.4, a significant increase from 69.3 in June 2024. Although the manufacturing sector is facing tough challenges, hopes for improvement in future business conditions remain intact.

ASEAN Manufacturing PMI: Indonesia Still Lags Behind

Compared to other ASEAN countries, Indonesia's manufacturing PMI still lags behind. In July 2024, ASEAN's manufacturing PMI recorded a figure of 51.6, slightly down from 51.7 the previous month. While Singapore, Vietnam, and Thailand posted positive PMI growth, Indonesia, along with Malaysia and Myanmar, experienced a contraction.

With this downward trend, Indonesia needs to take strategic steps immediately to reverse the situation and strengthen its manufacturing sector. Government support and collaboration between industry players are key to driving recovery and growth in the future.