Manufacturing Purchasing Managers’ Index (PMI) posted 50.9 in February, falling from January' reading of 52.2 and signaling the weakest improvement in the health sector since last November - Photo by Industry Ministry Office

JAKARTA (TheInsiderStories) – Indonesian manufacturing growth lost momentum in February amid disruption of the COVID- 19 pandemic, IHS Markit reported today (03/01). The country’ Manufacturing Purchasing Managers’ Index (PMI) posted 50.9 in February, falling from January’ reading of 52.2 and signaling the weakest improvement in the health sector since last November.

Commenting on the latest survey results, Andrew Harker, the economist at IHS Markit, said, “Recent elevated COVID-19 case numbers show that the pandemic continues to disrupt operations. The manufacturing sector remained relatively resilient in February, merely seeing a slowdown in growth rather than any outright contraction in output and new orders. Employment, meanwhile, continued to move closer to stabilization.”

He continued, despite disruption caused by the pandemic, firms’ optimism in the year-ahead outlook remains undimmed amid hopes that the pandemic will be brought to an end soon. He added, the softer momentum growth signaled by the headline index reflected trends in both output and new orders.

Production rose for the fourth consecutive month, but at a modest pace that was the weakest in this sequence, said the agency. Although firms raised output in line with sustained new order growth, some noted disruption caused by the pandemic.

Slower production growth meant that stocks of finished goods decreased, following a rise in January. New orders rose slightly in February, and to the least extent in three months. Meanwhile, new export business continued to fall, the fifteenth month running in which this has been the case.

Harker rated, recent sustained improvements in output and new orders encouraged firms to expand purchasing activity and limit job cuts. Employment decreased for the twelfth month running, but at the slowest pace in this sequence. According to him, some of those firms that lowered staffing levels indicated that cuts were likely to be temporary in nature. Backlogs of work, meanwhile, fell at the slowest pace in 12 months.

In addition, he noted, firms raised their purchasing activity for only the second time in the past year, and at the fastest pace since May 2019. As a result, stocks of purchases neared stabilization as the rate of depletion in pre-production inventories softened for the tenth month in a row. Input costs increased substantially, with the rate of inflation quickening to the sharpest since October 2018.

Higher costs for raw materials were widely mentioned amid supply shortages and difficulties sourcing inputs from abroad. The rate of output price inflation also quickened and was the fastest since November 2018 as manufacturers passed on higher input costs to their customers.

Suppliers’ delivery times lengthened for the thirteenth successive month. The rate of deterioration in vendor performance was solid, albeit less pronounced than in January. COVID-19 restrictions and transport disruption caused by flooding were the main factors behind delivery delays in February.

Manufacturers in Indonesia remained strongly optimistic that production will increase over the coming year, with more than two-thirds of respondents predicting a rise. Hopes that the COVID-19 pandemic will come to an end were central to positive expectations.

Commenting the report, industry minister, Agus Gumiwang Kartasasmita still optimistic, with the various policies and stimuli that have been launched by the government the Indonesian Manufacturing PMI will continue to penetrate at an expansionary level. Plus, the government just provided a fiscal incentive in the form of a reduction in the luxury goods tax for motor vehicles.

“This policy will certainly increase confidence in industry players and boost people’ purchasing power. We are sure that the PMI in the following month can increase, hopefully it will be above the index 51,” he asserted.

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