The Indonesian government revised down its target for the country's manufacturing growth in 2014 to 6 percent year-on-year (yoy) from 6.4 to 6.8 percent (yoy) previously. Main reason for the downgrade was the lower than expected GDP growth result in the first quarter of 2014. Earlier this week, Statistics Indonesia announced that the Indonesian economy expanded 5.21 percent in Q1-2014, the slowest quarterly growth pace since the fourth quarter of 2009. Last year, Indonesia's manufacturing sector grew 6.19 percent (yoy).
In the first quarter of 2014 the Indonesian manufacturing industry grew 5.16 percent (yoy). Indonesian Minister of Industry MS Hidayat said that the slowdown in manufacturing was caused by the recently introduced ban on exports of unprocessed minerals as well as the sharply depreciated Indonesian rupiah exchange rate (in the second half of 2013). The weaker rupiah resulted in lower demand for Indonesian manufactured products because of higher prices as raw materials need to be imported and paid in US dollars.
Hidayat said that the negative impact of the ban on exports of raw minerals will be felt for the next one or two years until smelting facilities, which are currently being built, will become operational. The export ban, part of the 2009 Mining Law, has been designed to support the establishment of value-added processing industries. Currently commodities, particularly raw ones, account for around 60 percent of the country's total exports.
Other factors that have negatively impacted the performance of the Indonesian manufacturing industry include minimum wage increases as well as higher electricity prices.
Growth of the Indonesian Manufacturing Industry 2009-2014:
annual % change
¹ Government projection
Source: Ministry of Industry