July 3, 2026
JAKARTA – Indonesia’s manufacturing sector suffered its sharpest contraction in a year as new orders dried up and factory-gate prices rose at the fastest pace in nearly 13 years, intensifying calls for government intervention.
The purchasing managers’ index (PMI) for Indonesia’s manufacturing sector plunged to 46.9 in June, according to data published by S&P Global on Wednesday. That marks a significant drop into from May, when the reading was exactly at the 50-point threshold that separates expansion from contraction.
A renewed decline in new orders drove the slump, with total demand falling for the first time in three months and at the fastest pace in a year.
Saleh Husin, deputy chairman for industry at the Indonesian Chamber of Commerce and Industry (Kadin), said the report signaled a clear deterioration in operating conditions, driven by weakening demand from both the domestic and export markets.
He attributed the downturn largely to a disruption of global trade, geopolitical tensions and volatile energy prices, but also to domestic factors.
Indonesia’s contraction was deeper than that of its ASEAN peers. The regional manufacturing PMI held at around 50.5, with Thailand, Vietnam, the Philippines and Malaysia managing to stay in expansion territory above the 50-point mark.
“This indicates that the pressures Indonesia is experiencing are not only external but also stem from domestic challenges,” Saleh told The Jakarta Post on Thursday, citing weak domestic demand, high production and logistics costs and a failure to attract enough global investment.
The downturn, he added, was already starting to show on the ground, with some export-oriented and consumer goods industries reporting a slowdown in new orders and reduced capacity utilization.
More manufacturers were postponing expansion to focus on efficiency and cash flow, though certain subsectors backed by government projects remained relatively stable, Saleh explained.
He urged the government to accelerate state spending on domestic products and expedite stimulus measures, including electric vehicle incentives, to generate fresh orders.
He stressed that ensuring the availability of subsidized natural gas was critical for energy-intensive industries and called for accelerated deregulation, exchange rate stability, broader access to financing, and stronger manufacturing investment.
“With this combination, business confidence will increase, restoring growth in new orders, capacity utilization and production,” he said.
The Association of Indonesian Metalworking and Machinery Companies (GAMMA) has raised the alarm over the plunging PMI data, calling for immediate policy intervention to restore business confidence and protect employment.
“This requires an immediate response,” GAMMA chairman Dadang Asikin said in a statement on Wednesday, urging the government to expedite the deployment of state-funded projects with strong multiplier effects.
He demanded that programs financed through the state budget, National Strategic Projects (PSN), state-owned enterprises (SOEs) and investment by state asset fund Danantara prioritize locally made goods over imports to strengthen and national manufacturing.
GAMMA proposed reinforcing the local content policy and stepping up state capital expenditure to provide stimulus and maintain a healthy business climate by cracking down on “unfair” import practices.
“It’s time for national development to become the driving force behind the revival of Indonesia’s manufacturing industry,” Dadang said in the statement.
Government measures succeeded in stabilizing the financial markets and preventing a rupiah or bond market crisis, but they remained insufficient to revive manufacturing, Josua Pardede, chief economist at Bank Permata, told the Post on Thursday.
Broad money supply expanded 10.8 percent in May, while bank credit grew at the same pace, with investment credit surging 20.5 percent and working capital credit rising 7.9 percent.
“However, this increase in credit has not automatically translated into increased factory orders, because businesses still face high costs, weak demand and cash flow uncertainty,” he said.
“Financial market stabilization has only been effective as a defensive barrier, not as yet an engine of recovery in the real sector.”
On foreign investment, Josua said it would be too harsh to label government policies a failure, though they had not been optimal in attracting extensive, labor-intensive investment into local supply chains.
Investment continues to flow into manufacturing, energy, real estate and downstream mineral industries, with West Java remaining a key hub.
“The problem is that this investment remains too concentrated in large projects and specific sectors, resulting in uneven impacts on small and medium-sized factories and labor-intensive industries,” he explained.
Josua called for temporary, targeted and conditional incentives, including import duty relief for essential raw materials, expedited tax refunds for exporters, interest rate subsidies for industries retaining workers and currency hedging support.
He also called for steps to contain electricity, gas, port and freight costs for factories committed to avoiding mass layoffs, and stressed the need to streamline raw material import licensing, reducing repeated port inspections, ensuring industrial gas supply and expediting government payments to suppliers.
Similarly to Dadang, he said the government should ensure sourcing from domestic producers for major programs like the free meals scheme. “If it is disconnected from local food, packaging, logistics and processing supply chains, the impact on manufacturing will be minimal.”
Approaching the third quarter, Josua noted bright spots in industries including mineral processing, palm oil products, chemicals, vehicles, building materials and housing.
Manufacturing exports grew 6.80 percent year-on-year from January to May, driven by a 60.88 percent surge in nickel and nickel derivatives, but these localized gains should not be read as signs of a wider recovery,” Josua cautioned.
May data showed manufacturing exports down 3.59 percent year-on-year.