Aditya Suharmoko, Jakarta – The manufacturing sector may expand faster in the second quarter from a quarter earlier as firms start producing more than in the first quarter, with the economic growth getting back on track.

"I see in the second quarter the manufacturing sector may be better... (In) the first quarter (the sector slowed) as a reaction to the fourth quarter of 2008 when demand nose-dived, causing producers to halt production," Finance Minister Sri Mulyani Indrawati said Monday.

The global economic crisis and downturn hit Indonesia strongly in October last year, with the Indonesian financial market being the hardest hit among the Asian countries. The sentiment then spread to the real sector, in which manufacturers responded by cutting production as global demand was weakening – eventually hitting jobs.

But in the first quarter, consumption proved to be resilient, fueling the economy to expand by an estimated 4.6 percent, according to the central bank and Finance Ministry.

"If purchasing power remains strong, as did consumption in the first quarter, then they (manufacturers) will begin to see a decline in their stocks, making them start producing goods again," said Mulyani.

She added that the rise in car sales and electricity consumption by industries in March as compared to the previous months this year showed the economy had started moving again, supported by still-high purchasing power.

According to the Finance Ministry, electricity consumption in industries in March rose 2 percent from February. In the last three-month period of 2008, power consumption in industries had contracted by 3 percent.

The central bank has estimated that the manufacturing sector may expand 2 percent this year as compared to the 3.7 percent growth it recorded last year.

The manufacturing sector and the mining sector are forecast to show the sharpest declines this year, while transportation and communications should only slow slightly.

However, Mandiri Sekuritas chief economist Destry Damayanti said the manufacturing sector would still have difficulties to "grow normally" in the second quarter as demand has not yet fully recovered.

"Global demand is still low, affecting export-oriented industries; domestic demand is also low as people's purchasing power weakens; and bank loans have not recovered, reducing company activities. (These factors) make the growth of the country's manufacturing sector somewhat hesitant," she said.

She added the sector might grow by as little as 1.5 percent this year, less than the central bank's estimate.

Growth in the manufacturing sector, with labor-intensive factories, is crucial to help avoid further layoffs and to keep growth in unemployment and poverty in check.

On the demand side, the government has been trying to bolster the capacity of the domestic market to generate demand, at a time when the export outlook remains depressed, to keep the economy going well.

The central bank has said the economy may expand by 3 percent to 4 percent in 2009, down from 6.1 percent growth last year.

Mulyani said the economy could grow higher than that. "I still think a range of between 3 percent and 4 percent is too low. I think it will be between 4 percent and 4.5 percent".

Previously, Mulyani had said that, as exports and investments continued to drop, economic growth in the second and third quarter might likely be slower than the 4.6 percent booked in the first three-month period. But the economy would start picking up again in the last quarter of the year. Now it seems there might be some earlier signs of recovery.