Indonesia’s HSBC Markit Purchasing Manager’s Index (PMI) showed a reading of 51.1 in April 2014, significantly up from 50.1 in the previous month, meaning that manufacturing activity in Indonesia has grown (a reading above 50.0 indicates expansion, while a reading below 50.0 indicates contraction). In fact, amid improved economic conditions as well as strong demand, manufacturing activity in Southeast Asia’s largest economy expanded at the fastest pace in 11 months.
April’s new orders grew at the fastest pace since January 2014 due to increased domestic and external demand, particularly export orders from trading partners in Asia and Europe grew markedly.
HSBC Economist Su Sian Lim said that although rising new orders also prompted employers to enlarge work forces (for the first time since July 2013), it remains to be seen whether this momentum can be sustained as Indonesian commercial banks have still not fully adjusted their lending rates in line with Bank Indonesia’s monetary tightening in 2013. Between June and November 2013, Bank Indonesia gradually raised its benchmark interest rate (BI rate) from 5.75 percent to 7.50 percent in order to combat high inflation and ease the country’s current account deficit, thereby supporting the value of the Indonesian rupiah exchange rate.
However, April’s output index contracted at 49.8 as flood-related reasons, the April legislative election, and raw material shortages caused a fall in output for the second straight month.
Meanwhile, increased input costs for metals, electronic components, chemicals, paper, plastics, textiles and energy made manufacturers decide to charge higher output prices.