Statistic bureau reported Indonesian economic growth contracted 3.49 percent in third quarter of 2020 compared to same period in 2019 - Photo by IHS Markit

JAKARTA (TheInsiderStories) – Indonesia’ Manufacturing PMI rose to 50.8 in August 2020 from 46.9 in the prior month, PMI Survey Data showed. This was the first growth in the sector since February, as business operations continued to recover amid an easing of COVID-19 restrictions, and shows an improvement in the health conditions of the sector the.

Responding to the latest survey results, Bernard Aw, chief economist at IHS Markit, said, “For the first time since February, the company Indonesian manufacturers reported improving business conditions in August, with output growth on fastest rate for over six years due to business continue to adjust to loosening restrictions COVID-19.”

PMI data is average (48.8) so far for the third quarter hints at a much better if manufacturing picture compared to the second quarter. Business confidence also rises to highest level since May 2019 as companies adjust self with gradual easing of disease-related restrictions COVID-19.

Even though output and sales increased, the company continued reducing employment and purchasing activity amidst the effort cost control. Input prices rose sharply again, accompanied by a much lower increase in output costs. New output and orders rose at the fastest range in just six years.

Company in general states that output and growth strong sales stemmed from the economic re-opening gradually. The underlying data show that the increase client demand is mainly driven by the domestic market, with external demand remains weak. New export orders fell sharp again in August.

However, the increase in production failed to exert pressure larger capacity. Instead, buildup rate work decreases, indicating that capacity is running out still persist across sectors and in turn causes further reduction in staff numbers.While, job vacancies have decreased since July.

The increase in sales caused only a few companies to do so increased their buying activity in August. In balanced, the level of input purchases decreased from July, though at the weakest level in the current period of contraction. As a result, input inventory is running low as companies take advantage existing stock to meet the demand.

According to anecdotal evidence, finished goods stock holdings have also decreased, partly due to orders filled up quickly. The survey also shows another moderate level of increase on average delivery time. Companies often mention about shortage of supply at distributors, as well as delays in freight transport.

From a price perspective, the input cost inflation rate increases on month August, because respondents said that the price increase raw materials and unfavorable exchange rates have been increase operating costs. The increase in costs is only partial charged to customers because the company raised a little their selling price.

Finally, expectations regarding output in the coming year rose from July, with the Future Output Index reaching the highest level 15 months. The company remains optimistic that the pandemic will end soon, and market conditions will return to normal.

“Demand is also showing signs of revival back, helping reduce the rate of job loss. Business confidence has increased since July. Therefore of that, the latest data hints that the economy will rose stronger after falling in the second quarter,” he noted.

However, other survey indicators include an accumulation of jobs and employment continues to warn about risks decreased prospects. The worry is that the recovery mainly comes from demand held back by lockdown actions and can falter after early awakening.

“Therefore, demand should continue to improve deeply the next few months, but the thing to fear is increasing unemployment and continuing needs to sustain social distancing can be devastating recovery 175,000 cases dare 2.23 million tests,” said Aw.

The positive realization of Manufacturing PMI in August was widespread in various countries. Several large countries have recorded an expansionary trend in manufacturing activity among others, the United States (53.6), China (53.1), and Europe (51.7).

However, its still there several countries such as Japan (46.6) and Thailand (49.7) have not been able to return positive level since the pandemic. Manufacturing activities in Malaysia (49.3) and the Philippines (47.3) contracted again in August, after being positive in July. In general, the improvement in manufacturing activity continues to increase optimism for global economic recovery, although various risks still need to be watched out for.

“The COVID-19 case is still on an increasing trend in the world and there are threats the second wave of virus, which can hamper economic activity as well overshadows the process of economic recovery in the future,” said the head of the fiscal policy agency at the ministry of finance, Febrio Kacaribu, in an official statement.

The improvement in Indonesia’ manufacturing activities, he added, was supported by increased production and new order, dominated by domestic demand. While, the demand from exports is still weak amidst the ongoing pandemic situation. The easing of social restrictions at home has also increased business confidence to the highest level since May 2019 and encouraging improvements economic activity on a regular basis.

Kacaribu asserted, this improvement in manufacturing performance is a positive signal for the prospect Indonesia’ economic recovery in the second semester of 2020.

“With contributions per second quarter 2020 amounting to 20 percent of GDP and labor absorption as of February 2020 18.5 million people, the manufacturing sector has a very important role for the economy Indonesia. Thus, it is expected that this recovery trend will continue to ahead,” he explained.

Furthermore, the head revealed, that the government will continue promote economic recovery, ensuring that health protocols are maintained through strengthening various policy supports such as the National Economic Recovery Program and ensure its implementation. At the same time, the government and various world authorities also continue to encourage the development of vaccines will be a very important part in solving the pandemic.

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