The improving manufacturing environment in Indonesia last month was brought about by improved demand (both domestic and foreign demand) for new products, reflected by rising order books. New export orders finally increased, snapping a six-month sequence of contraction.

However, holdings of finished goods continued to fall in April, implying that the fulfillment of orders come from existing stocks. That said, post-production inventories declined only modestly and at a slower pace compared to March.

Growth of order books combined with stock-building efforts made some local companies decide to scale up their input buying in April. Quantities of purchases rose for the second consecutive month, albeit marginally. Concurrently, pre-production inventories increased in April, ending a five-month contraction period.

Despite an overall expanding manufacturing sector in Indonesia, employment continued to fall in April although the pace of job shedding slowed to the weakest since November 2016.

Input costs rose further in April 2017 as companies need to pay higher prices for chemicals, metals, oil, plastics and textiles. Greater cost burdens were also attributed to the weaker rupiah exchange rate (versus the US  dollar). The overall rate of inflation climbed to an 18-month high. Output charge inflation also gathered speed, reaching its highest mark since December 2015.

Pollyanna De Lima, Economist at IHS Markit, commented: "Indonesian manufacturers started Q2-2017 on a strong footing as ongoing growth of new work urged businesses to step up production. Another positive development shown by the PMI survey came from a turnaround in new export orders, which increased in April for the first time since last September.

The upswing in output was, however, insufficient to generate jobs, while there remained evidence of spare capacity. But, with output growth gathering speed, firms will look to hire more workers in the near-term should the rise in demand be sustained.

Posing a threat to the outlook is an intensification of inflationary pressures, which mostly stemmed from the depreciation of the rupiah against the US dollar. Goods producers sought to share with their clients the additional cost burden, as highlighted by the strongest increase in factory gate charges for 16 months."

Manufacturing PMI Indonesia: