March 4, 2025
JAKARTA – Manufacturing activity in Indonesia surged last month to its highest level in nearly a year, driven by an increase in new orders and jobs ahead of Ramadan, but analysts say the long-term outlook is less than rosy.
Consumer demand typically peaks during the Muslim fasting month, which falls in March this year.
According to the latest S&P Global report released on Monday, Indonesia’s manufacturing Purchasing Managers’ Index (PMI) jumped to 53.6 in February from 51.9 in January.
This marks the third consecutive month the index has reached above the critical 50-point threshold separating expansion from contraction.
Based on a survey of purchasing managers from around 400 manufacturers nationwide, S&P Global’s Indonesia Manufacturing PMI report offers a snapshot of business conditions in the sector.
The new orders subindex rose for a third consecutive month in February, marking the strongest growth rate since March 2024.
To meet higher production needs, manufacturers ramped up input purchases and capacity, leading to the fastest employment growth since the survey began nearly 14 years ago.
Joe Hayes, principal economist at S&P Global Market Intelligence, noted that manufacturers’ confidence jumped to its highest level in nearly three years as companies grew more optimistic about future demand.
The momentum was largely driven by domestic demand however, while export orders saw a slight decline.
“Faltering exports may be disappointing, but with global trade uncertainty and rising protectionism affecting international markets, it’s a promising sign that Indonesian manufacturers remain optimistic,” Hayes said.
“This suggests the domestic market could be a key driver of growth, at least in the near term.”
The survey results also showed that factories continued to face cost pressures from unfavorable exchange rate movements, rising raw material prices and vendor markups. As a result, many local producers hiked prices last month.
Read also: Manufacturers’ confidence grows, but cost pressure remains: PMI reports
Industry Minister Agus Gumiwang Kartasasmita said the country’s February manufacturing PMI was the strongest in Southeast Asia, outperforming even advanced economies like China, Japan and the United States. He credited this growth to a favorable business climate and government policies, such as the five-year extension to the cheap gas program for specific industries.
“With the domestic market as the main driver [of manufacturing demand], we must protect it from the pressure of imported products through safeguards, restrictions and prohibitions,” Agus said in a statement on Monday, stressing that sustaining this momentum would require ensuring fair competition, particularly with regard to dumping.
The minister also expressed confidence that Indonesia’s manufacturing PMI would remain above 50 this month, which coincided with Ramadan.
“During Ramadan and [Idul Fitri], consumption typically surges, especially for food and beverages, textiles and clothing, as well as footwear,” he said.
Read also: Electricity subsidies keep consumer prices subdued in February
Looking beyond the latest data, analysts see widespread layoffs, declining exports and weak inflation signaling trouble ahead for local manufacturers, and have urged the government to view the upbeat results with caution.
Non-uniform expansion
Mohammad Faisal, executive director at the Center for Reform on Economics (CORE), attributed February’s PMI surge to government incentives aimed at both businesses and consumers, such as a 50 percent discount on electricity bills for the first two months of the year. He also noted that seasonal demand, particularly in the lead-up to Ramadan, had a key role in boosting manufacturing activity.
However, Faisal pointed out that not all manufacturing sectors were experiencing growth.
“Some industries may see contraction and [some] have even collapsed. The textile sector might be one of them, especially if we look at [the recent bankruptcies and layoffs] at Sritex,” Faisal told The Jakarta Post on Monday.
Andry Satrio Nugroho, who heads the Center of Industry, Trade and Investment of the Institute for Development of Economics and Finance (INDEF), echoed that sentiment, saying that domestic orders generally increased before Ramadan.
While the manufacturing PMI was strong, Andry warned that it did not fully capture the conditions on the ground, where companies were continuing to shut down operations or lay off workers, particularly in labor-intensive industries like textiles.
He also pointed to the decline in exports as a pressing concern, as sectors like textiles and footwear usually relies on sales to the US.
“This trend raises serious questions for the government. It should not be satisfied with a strong [manufacturing] PMI alone and assume the industry is doing well. The reality is far more complicated,” he told the Post on Monday.
Josua Pardede, chief economist at publicly listed Bank Permata, pointed to the macroeconomic data reflecting the complexities of Indonesia’s economic landscape.
“The rise in demand for manufactured goods, as indicated by strong domestic orders, suggests improving business confidence and consumer spending in certain sectors,” he said in a statement on Monday.
“However, deflation in food and energy prices, combined with temporary effects of the electricity subsidy, underscores lingering concerns about broader consumer demand.”