Manufacturing Activity Indonesia Contracts Again in July 2017
Manufacturing activity in Indonesia fell further in July 2017, touching a one-year low. The Nikkei Indonesia Manufacturing Purchasing Managers' Index (PMI) was recorded at 48.6 in July, falling deeper into contraction. In the preceding month the index was 49.5 (a reading of 50.0 separates contraction from expansion). Declining new orders caused a sharp and rapid drop in output in Indonesia's manufacturing sector. This then led to job losses, fewer quantities of inputs purchased and depletion in stock levels.
Meanwhile, business confidence fell accordingly, reaching its lowest level in over four years. On a positive note, inflation rates for both input costs and output charges cooled.
The rate of reducing new work orders was recorded at the quickest pace since October 2016, while a shortage of raw materials was also reported. Weak demand in combination with challenges economic conditions and a delay in clients' orders resulted in the continuing drop in production volumes in Indonesia's manufacturing sector in July.
Also foreign demand for Indonesian-manufactured goods fell, effectively ending a three-month period of expansion.
Falling orders also made Indonesian manufacturers cut spending in July, thus employment and buying levels fell. Low stock levels were also preferred by these manufacturers, reflected by declining pre- and post- production inventories in July.
All in all, this context led to waning business confidence, touching the lowest level since April 2013 although overall companies still expect to see output grow in the remainder of 2017.
Pollyanna De Lima, Principal Economist at IHS Markit, noted: Indonesian manufacturers reported another difficult month in July, with output falling at an accelerated pace amid a drop in new business inflows. A subdued demand environment both domestically and externally held back the sector, with companies trimming stock levels, purchasing and employment in response. There was better news from the survey's price indicators, with reduced cost inflationary pressures leading output price inflation to wane.
Manufacturing PMI Indonesia: