Manufacturing Industry Remains Expansive amid Global Business Climate Decline

Jakarta, INTI - Ongoing conflicts in the Middle East, including Iran-Israel, Israel-Palestine, and those occurring in the Red Sea, along with the unstable global economic conditions, have led to a decline in business activities in April. This situation has resulted in increased logistics costs and decreased orders from abroad, especially for export-oriented industries and those reliant on imported raw materials. This is reflected in the April 2024 Industrial Confidence Index, which experienced a slowdown in expansion.

The April 2024 Industrial Confidence Index indicates a slight decrease in the overall business activity of the industrial sector compared to March 2024. The percentage of respondents reporting increased and stable business conditions decreased from 76.4% to 73.9%.

"The Industrial Confidence Index (ICI) for April 2024 still shows expansion at 52.3, a decrease of 0.75 points compared to March 2024 at 53.05. Although the expansion has slowed, this is a positive signal for the industry amidst the current global business climate," said Ministry of Industry Spokesperson Febri Hendri Antoni Arif in Jakarta, Monday (4/29).

The decline in the ICI value is influenced by the decrease in the value of new orders and product inventories. The ICI value for new orders decreased by 2.32 points to 51.93, the lowest since 2024. Meanwhile, the ICI value for product inventories decreased by 1.61 points to 54.02. In contrast, the ICI value for production increased by 2.43 points to 51.76. This is because inventories that were optimally absorbed in March are slowly being reproduced. However, the increase in production costs, such as raw material costs, energy, and increased logistics costs, certainly affects selling prices and production decisions.

Febri further explained that the decrease in the ICI value occurred in 16 sub-sectors out of 23 non-oil processing industries. Apart from the uncertainty of the global economy, some factors driving the decline in the ICI value include the seasonal factors of Eid al-Fitr holidays and collective leave, which have reduced industrial activities due to fewer working days. Domestic conditions, such as the increase in food prices, prompting people to be more cautious in spending, also contribute to the decline in the ICI value during this period.

However, despite this, 19 sub-sectors still experienced expansion, contributing to 87.7% of the 2023 GDP. The highest expansion was experienced by the food industry, although it experienced a decrease in the ICI value, followed by the beverage industry, which also experienced a decrease in the ICI value, and the Leather, Leather Goods, and Footwear Industry (increased ICI value). Furthermore, there are 2 sub-sectors that experienced a level change to expansion, namely the Textile Industry and the Wood, Wood Products, and Cork Industry.

The ICI value of the Textile Industry in April increased significantly, leading to its first expansion since the ICI was released in November 2022. The increase in the ICI value of the textile industry is supported by a high increase in the production variable and inventory variable indicating that its products are optimally absorbed into the market. This is thought to be the impact of the enforcement of Minister of Trade Regulation No. 3 of 2024 concerning Amendments to Minister of Trade Regulation No. 36 of 2023 concerning Import Policies and Regulations, which suppresses the entry of imported products. However, the market conditions are still sluggish, as seen from the value of new orders, which are still contracted, especially in the domestic market. Meanwhile, the expansion level increase of Wood, Wood Products, and Cork is driven by increased production and absorption of product inventory to fulfill previous orders from abroad.

On the other hand, there are 4 sub-sectors that experienced contraction after previously experiencing expansion, namely the Other Transport Equipment Industry, the Computer, Electronic, and Optical Goods Industry, the Basic Metals Industry, and the Furniture Industry. The decrease in the ICI value of the Other Transport Equipment Industry is due to a decrease in domestic orders, indicated by the decreased sales of motorcycles during the Eid holidays period, causing production and delivery activities to stop, as well as changes in consumer patterns.

Similarly, the Computer, Electronic, and Optical Goods Industry sub-sector experienced a decrease in the ICI value of new orders due to a decrease in domestic orders. In addition, in this industry, the dependence on imported electronic components is very high, so it is affected by the enforcement of import trade regulations. The decrease in the ICI value of the Basic Metals Industry sub-sector is mainly due to a decrease in domestic orders and domestic selling prices due to the increase in the depreciation of the rupiah. However, for basic metal industries that are export-oriented, there is an increase, one of which is due to the issue of hoarding raw materials for HS 72 (Iron and Steel) by China. This is different from the furniture industry sub-sector, where the decrease is driven by a decrease in new orders from abroad due to the economic situation of partner countries and the seasonal factor of Eid holidays.

The slowdown in the ICI value and the decline in industrial business activities did not make industrial players in Indonesia pessimistic; instead, optimism among industrial players for the next six months continues to rise from 72.3% to 72.7%, the highest value since the ICI was released. The most optimistic sub-sector for the next six months is the paper and paper goods industry, followed by the printing and reproduction of recorded media industry, and the food industry. This high level of optimism is due to the confidence of business players in the central government's policies and the future improvement of the global economy.

Director General of Small, Medium, and Various Industries, Reni Yanita, added that the expansion in other manufacturing industries for two consecutive months is due to improvements in export performance. This sub-sector also still has great potential for increasing foreign exchange, namely the jewelry, toy, and false eyelashes industries. The steps taken by the Ministry of Industry to maintain the performance of this industry include maintaining the export market, optimizing domestic spending or consumption by increasing the Domestic Component Level (TKDN), and optimizing international cooperation so that local products can enter international markets, especially in terms of import duties. Regarding changes in technology in large industries, the Ministry of Industry has identified three KBLIs (24, 26, and 30) to be collaborated between small and large industries in terms of coaching and technology transfer, in order to improve the performance of these industries.

The Ministry of Industry encourages the Increased Use of Domestic Products (P3DN) program to increase the absorption of domestic industrial products and the continuation and expansion of the Certain Natural Gas Price (HGBT) program to maintain the competitiveness of domestic products against imports or in export markets. Furthermore, the promotion of the use of Local Currency Transactions (LCT) can mitigate the impact of the depreciation of the rupiah exchange rate, which affects commodities that are dependent on imported raw materials and capital goods. In addition, the enforcement of Minister of Trade Regulation No. 3 of 2024, especially for the electronic and textile sectors, can optimize domestic producers to continue production.