These natural disasters, causing disturbances to logistics networks and pushing inflation to 1.07 percent in January 2014, managed to curb manufacturing production in February. Nonetheless, the second month of the year was the fifth consecutive month of growth in terms of new orders.

HSBC economist Su Sian Lim said that another factor that led to slowing manufacturing growth was Bank Indonesia's tighter monetary policy. Between June and November 2013, the central bank raised its benchmark interest gradually from 5.75 percent to 7.50 percent. Tighter monetary policy was needed last year to combat high inflation, limit the country's wide current account deficit and reduce pressures on the sharply depreciating Indonesian rupiah exchange rate. Higher inflation implies higher production costs for manufacturers and these costs are then passed on to consumers.

In 2013, growth of Indonesia's large and midsized manufacturing industry was recorded at 5.64 percent, led by growth of the automotive, metal goods and food products industries. This year, the Ministry of Industry targets a 6.6 percent growth rate.

      Manufacturing
   Industry Growth
  2009 
            2.5%
  2010
            5.1%
  2011
            5.8%
  2012
            6.4%
  2013
            6.1%
  2014
            6.6%¹

¹ government target
Source: Ministry of Industry

Discuss