Although improving slightly, Indonesia's manufacturing activity contracted for the 8th straight month in May 2015. The HSBC Markit purchasing manager’s index (PMI) rose to 47.1 in May from 46.7 in the preceding month (a score below 50 indicates contraction in manufacturing activity). The survey indicated that output, new orders and employment remained weak. This feeds expectation that a sudden improvement in Indonesian manufacturing in the near term is highly unlikely. On a positive note, output and new orders fell at weaker rates.
However, the survey signalled that the drops in foreign orders and purchasing activities accelerated to a new all-time record. New export orders contracted to 40.2, the weakest figure since April 2011, on weak demand from Europe, Asia and the USA. Meanwhile, for the 10th consecutive month, Indonesian manufacturers shed jobs in May on the back of declining new work and attempts to cut operating expenses.
These weak manufacturing data are also the result of slowing economic growth in Indonesia. Since 2011, the economy of Indonesia has been slowing on the back of sluggish global economic growth (impacting negatively on the country’s export performance) and the high domestic interest rate environment (curbing domestic demand and business activity). In the first quarter of 2015, GDP growth slowed to a five-year low of 4.71 percent (y/y). However, as manufacturing data indicate continued contraction, it fuels concern that economic growth in the second quarter of the year will remain sluggish.
Indonesia Manufacturing PMI: