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Activity in Indonesia's manufacturing industry tumbled into contraction again in June 2017, after having experienced four months of straight growth. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) declined to a reading of 49.5 in June, from 50.6 in the preceding month (a reading of 50.0 separates contraction from expansion). Contraction in Indonesia's manufacturing sector is particularly blamed on a stagnation in domestic order books.
Subdued demand for manufactured output resulted in lower production volumes as well as job losses in Indonesia's manufacturing sector in June 2017.
However, growth of new export orders reportedly picked up since May, with demand particularly originating from Europe and America. In fact, upturn in new export orders was solid and among the quickest in the survey's more than six-year history.
Still, improving export orders could not offset the negative impact of bleak domestic demand. Manufacturing production in Indonesia fell for the first time in four months. Meanwhile, payroll numbers fell for the ninth consecutive survey period, but the pace of contraction was only marginal, while panelists noted the non-replacement of voluntary leavers.
Despite the bleak June report, a relatively strong reading for Indonesia's April manufacturing activity means that the average in the second quarter (at 50.5) is higher than that seen in the preceding quarter (at 50.0), implying an improving manufacturing sector in Indonesia so far this year, in terms of quarterly performance.
Pollyanna De Lima, Economist at IHS Markit, said "the upturn in manufacturing was interrupted during June 2017 as weak domestic demand triggered reductions in output and employment. These factors, combined with stagnant order books and a softer increase in input stocks, resulted in a PMI reading that was consistent with worsening operating conditions in the sector.
That said, the PMI average for the second quarter of 2017 was in expansion territory and above the one seen in Q1. This indicates that manufacturing looks set to provide a stronger contribution to GDP than it did in the opening quarter. For 2017 as a whole, IHS Markit forecast economic growth to hold steady at 5.0 percent.
Survey data brought about positive news regarding trade, with goods producers noting the fastest rise in new export orders since September 2016."
Indonesia Manufacturing PMI: