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Indonesia's manufacturing sector contraction eases in August

Jakarta Globe - September 1, 2021

Jakarta – Indonesia's manufacturing sector has contracted for the second consecutive month in August, albeit at a slower rate, as disruptions brought by the Covid-19 pandemic continue to erode demands, report from research company IHS Markit on Wednesday.

The IHS Markit Indonesia Manufacturing Purchasing Managers' Index, a combined measure for manufacturing sector activities, rose to 43.7 in August from 40.1 in July. A reading below 50 suggests a contraction in the sector. On the other hand, a reading above 50 signals expansion.

"The Indonesian manufacturing sector continued to be affected by the second Covid-19 wave in August, and to a severe extent according to the latest IHS Markit PMI survey," Jingyi Pan, the economics associate director at IHS Markit, said in a statement.

Except for some critical industries, the government required manufacturers to operate their plants with a workforce capped at 50 percent of their capacity during the Level 4 and Level 3 community activity restrictions (PPKM) in Java and Bali in the past two months.

"The good news, however, is that things appear to be improving from July in line with the decline in Covid-19 cases in Indonesia. This was shown by the easing in the rates of decline for both demand and output compared to July," Pan said.

The active Covid-19 cases dropped to over 203,000 in August from their peak of more than 545,400 cases a month earlier. The country's daily new cases have also fallen to around 12,000 a day from its peak of more than 54,000 a day in July.

Still, manufacturers seemed to remain cautious with their purchases and employment. Both output and new orders remained downward in August, despite at slower rates compared to July.

"At the same time, we have seen confidence amongst Indonesian manufacturers sliding from July, despite the easing of the Covid-19 wave. Acquisition of pre-production inventory and employment conditions likewise deteriorated," Pan said.

"Going forward, it will be important to see these sub-indices improve as the first signs of recovery from the latest Covid-19 wave for the Indonesian manufacturing sector," Pan said.

The silver lining from the survey was that the level of confidence regarding production over the next 12 months stayed above the survey's average. Manufacturers expected a pent-up demand to be unleashed when the Covid-19 situation improves, IHS Markit said.

Source: https://jakartaglobe.id/business/indonesias-manufacturing-sector-contraction-eases-in-augus