Indonesia's Manufacturing Sector Hit Hard, July 2024 PMI Contracts Again

Jakarta, INTI – Indonesia's manufacturing sector took a heavy blow with a contraction in the Purchasing Managers' Index (PMI) for July 2024. According to the latest report from S&P Global, Indonesia's PMI plummeted to 49.3, the lowest level in 2024, compared to 50.7 in June. This figure shows that Indonesia's manufacturing sector is in a contraction phase, raising concerns about the country's economic stability.

Decline in Demand and Output: Main Causes of PMI Contraction

The significant drop in PMI was primarily due to a sharp decline in both domestic and foreign demand and weakened output. Domestic demand fell sharply to 48.7 from 50.4 in June 2024, below the expansionary threshold (a value of 50). A similar situation occurred with foreign demand, as the Net Export Orders index dropped to 48.9 from 49.3 in the previous month.

This decline in demand had a direct impact on output, which recorded a significant drop from 51.4 in June 2024 to 48.8 in July 2024. The weakening output reflects the major challenges faced by manufacturing companies in meeting the decreasing market demand.

Purchasing Activity and Inventory Levels Affected

The decline in demand also impacted purchasing activity by manufacturing companies. In July 2024, purchasing activity fell to 49.8 from 51.7 the previous month. Compared to January 2024, purchasing activity saw a significant decline of -5.8 points. Additionally, purchasing stock also decreased, reaching 50.4 from 51.7 in June 2024.

However, this decline led to an accumulation of finished goods inventory in warehouses. In July 2024, the Stocks of Finished Goods index rose to 52.8 from 48.5 the previous month, indicating that unsold products are piling up. This was exacerbated by slightly slower delivery times from suppliers, with the Supplier Delivery Time index dropping to 48.8 from 50 in June 2024.

Impact of Weaker Exchange Rate: Rising Input Prices

In addition to the above factors, the weakening rupiah exchange rate also played a role in pressuring the manufacturing sector. Input prices increased to 58.7 in July 2024, up from 59.5 the previous month. This price increase directly impacted output prices, which also rose to 52.9 from 51.9 in June 2024.

The decline in demand not only affected production but also the absorption of labor. In July 2024, the labor absorption rate dropped to 48.7 from 50.1 in June 2024, reflecting increasingly difficult labor market conditions. Many reports indicate that employee contracts were not renewed, adding to concerns about the stability of the workforce in the manufacturing sector.

Business Optimism: Hope Amidst Challenges

Despite the heavy challenges faced by the manufacturing sector, business confidence in future prospects remains high. The business expectations index recorded a figure of 75.4 in July 2024, a significant increase from 69.3 the previous month. This optimism reflects a belief that the market will improve and sales volumes will increase over the next 12 months.

This hope is mainly driven by the expectation that the global economy will recover, which in turn will boost demand for Indonesian manufactured products. Although challenges remain, business owners believe that through innovation and efficiency, Indonesia's manufacturing sector can rebound and thrive again.

ASEAN Manufacturing PMI: Indonesia's Position in the Region

Compared to other ASEAN countries, Indonesia's PMI still lags behind. The ASEAN manufacturing PMI as a whole recorded a figure of 51.6 in July 2024, only slightly down from 51.7 the previous month. Some countries like Singapore, Vietnam, and Thailand recorded positive PMI growth, while Indonesia, along with Malaysia and Myanmar, experienced contraction.

This position highlights the need for Indonesia to work harder to increase the competitiveness of its manufacturing sector in the regional arena. With the challenges faced, appropriate policies and strategies are needed to revive the manufacturing sector and make it a key pillar in Indonesia's economic growth.