Indonesian manufacturers see tough times ahead 

JAKARTA, Indonesia (MNTV) – Indonesian manufacturers are increasingly cautious in their outlook as business confidence has fallen to a record low amid concerns over United States import tariffs, reports ANN. 

The latest manufacturing Purchasing Managers’ Index (PMI) report from S&P Global shows that producers’ expectations for business conditions in the coming year slumped sharply in July as confidence hit the lowest level since April 2012.

Business confidence is an essential indicator to predict future behavior in the crucial sector, including decisions on investment, production expansion and employment policies, according to Permata Bank chief economist Josua Pardede.

“In the short to medium term, weak business confidence could result in slower new investments in the manufacturing sector, which could adversely impact production and job creation,” he said.

While current manufacturing activity improved as the headline PMI index rose to 49.2 in July from a reading of 46.9 in June, firms raised concerns that the US tariffs and reduced purchasing power on the part of clients would limit production volumes in the year ahead.

“July’s survey data indicated another negative month for the health of the Indonesian manufacturing economy. Downturns in output and new orders were sustained at the start of the third quarter, but eased from June,” said Usamah Bhatti, economist at S&P Global Market Intelligence.

“At the same time however, there was a renewed fall in new export orders, while firms remained in retrenchment mode as indicated by falling employment and purchasing levels,” he added.

Companies bought fewer materials in July, citing lower production requirements as they tried to use up existing stock. This extended the decline in purchasing activity for four consecutive months.

Josua pointed out that with employment and purchasing activity remaining in contraction territory, the manufacturing sector was likely to stay cautious about scaling up production capacity and hiring.

Josua argued that a recovery in the country’s manufacturing sector in the short term would depend on the government stabilizing macroeconomic conditions by managing inflation, boosting spending power and mitigating risks from international trade.

“Without strategic measures and appropriate policy interventions, the weak business sentiment risks prolonging the manufacturing sector’s contraction, hampering broader economic recovery,” Josua said.