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Manufacturing contraction a ‘warning’ sign for policymakers
Politicians have pointed fingers, analysts have noted cause for concern and business representatives have called for concrete measures after 34 consecutive months of expansion in manufacturing activity came to an end in July.
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A worker installs the battery of a Hyundai IONIQ 5 electric car at the Hyundai Motor Manufacturing Indonesia (HMMI) assembly plant in Cikarang, West Java, on April 6, 2023, (JP/Rachmat Kurniawan)
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ndonesian manufacturers have turned pessimistic about growth prospects on the back of weakening demand, supply chain snarls and rising costs, prompting finger-pointing among politicians and calls for action from business representatives.
The country’s manufacturing purchasing managers’ index (PMI) slipped into contraction territory in July for the first time in more than two years.
The headline index, a key gauge of manufacturing activity, fell to 49.3 points from 50.7 in June, according to the PMI report published by S&P Global released on Thursday.
This marks the first contraction since August 2021, at the height of the COVID-19 pandemic, and comes after 34 consecutive months of expansion.
A reading below 50 indicates a decline in activity while values above that threshold signify expansion.
“The market slowdown led to a marginal decline in operating conditions in July, with new orders dropping and production decreasing for the first time in two years,” Paul Smith, economics director at S&P Global Market Intelligence, said in a press release published on Thursday to accompany the latest survey results.
Manufacturers had become more cautious, cutting back on purchasing and employment at the fastest rate since September 2021, Smith added, while supply constraints had worsened the situation with extended delivery times due to ongoing shipping challenges.
