PMI is a leading indicator of the manufacturing sector, which a PMI above 50 indicates manufacturing is expanding while under 50 means contraction.
The PMI growth in May was driven by a significant growth in new orders in May, the strongest since July 2014, and raise of production rate during last four months, the longest expansion period over the last five years.
Meanwhile, new export order fell for six consecutive months in May due to weak global demand. However, the slowdown started to rebound since April 2018.
Furthermore, the employment index declined below 50 thresholds during May. The survey showed continuous pressure on the supply chain as the order fulfillment time for input continued to rise.
Manufacturers remain confident that the output will rise over the next 12 months and the level of optimism hits the highest level in three months.
The Nikkei Indonesia PMI release was compiled based on data compilation from monthly questionnaires sent to over 300 industrial companies. The survey is divided into eight main groups, namely basic metals, chemicals and plastics, electricity and optics, food and beverages, mechanical engineering, textiles and clothing, wood and paper, and transportation.
According to Indonesia’s Investment Coordinating Board data, investment realization in the manufacturing sector reached Rp62.7 trillion in the first quarter of 2018. It consisted of Rp21.4 trillion of domestic direct investment and US$3.1 millions of foreign direct investment. metal, machinery, and electronic industry contributed to Rp22.7 million or 12.3 per cent of the total investment realization.
According to Statistics Indonesia data, there is an improvement in the large and medium manufacturing industries in the first quarter of 2018. The two sub-sectors grew by 5.01 per cent in the first quarter of 2018 in year on year (YoY) basis.
It was an achievement as the industry suffered a slowdown in the last quarter of 2017 that recorded negative growth of 0.61 per cent (quarter to quarter). Moreover, the annual growth of large and medium manufacturing production in the first three months of this year able to surpass growth in the quarter I / 2016 of 4.13 percent (YoY) and the quarter I / 2017 of 4.46 percent (YoY).
The leather, leather goods, and footwear industry recorded 18.87 per cent, the highest growth in the first quarter of 2018 (YoY). It was followed by the growth in machinery industry by 18.48 per cent, apparel industry by 17.05 per cent, transportation equipment industry by 14.44 per cent, and food industry by 13.93 per cent.
Indonesia achieved the largest increase in Ease of Doing Business (EODB) over the past two years compared its regional peers in ASEAN. Indonesia improves to the 72nd position from the 106th position or jumps 34 positions. Other ASEAN countries such as Thailand and Vietnam only rose 20 and 23 ranks. While the Philippines fell 14 ratings and Malaysia fell two ranks.