Rama Sukarta, Erfan Maruf, Jakarta – Indonesia's manufacturing sector suffered a steep contraction in April 2025, with the S&P Global Manufacturing Purchasing Managers' Index (PMI) falling to 46.7, the lowest since August 2021 during the COVID-19 pandemic.
A PMI reading below 50 indicates contraction, while a reading above that level signals expansion. The April figure underscores the fragility of Indonesia's post-COVID recovery.
Ajib Hamdani, an economic policy analyst at the Indonesian Employers Association (Apindo), attributed the downturn to weakening global demand, fallout from new US import tariffs, and softening domestic consumption.
"Global uncertainty, particularly due to Trump-era protectionist policies, is directly pressuring Indonesia's manufacturing exports," Ajib said in a Monday interview with Beritasatu TV. The US accounts for about 14 percent of Indonesia's export market, and the tariff-driven slowdown has already translated into a sharp drop in demand.
He warned that rising input costs, combined with decreasing demand, are pushing production costs higher and eroding manufacturers' margins. "There's a real concern this contraction will continue through year-end unless mitigated effectively," he said.
The downturn is further exacerbated by domestic challenges, including sluggish consumer spending and rising job losses. Ajib cited over 40,000 layoffs between January and March this year, eroding purchasing power and prompting companies to scale back production.
The figure exceeds government estimates. As of May 2025, more than 24,000 workers in Indonesia had been laid off, according to Manpower Minister Yassierli, nearly a third of the total layoffs recorded in all of 2024.
Manufacturers are responding by cutting inventory levels and relying on existing stocks to fulfill orders, even during the typically high-spending Eid holiday period, a worrying sign for an economy still trying to regain pre-pandemic momentum.
Ajib urged the government to prioritize revitalizing labor-intensive industries to stimulate private sector growth and generate employment. "The state can't shoulder the burden alone. We need targeted incentives to help the private sector rebound and absorb labor," he said.
Adding to the alarm, data from the Central Statistics Agency (BPS) showed the national economy grew just 4.87 percent in Q1 2025, below both last year's first-quarter figure of 5.11 percent and the 2024 annual average of 5.03%.
"This is a warning sign. If we're starting the year below 5 percent, hitting the annual growth target will be extremely difficult," Ajib cautioned.
Mohammad Faisal, executive director of the Center of Reform on Economics (CORE), echoed the concerns, stating the PMI's 5.6-point plunge as unusually steep.
"PMI fluctuations are normally marginal, one or two points. A drop of this scale signals a dramatic shift, particularly between pre- and post-Eid demand," he said.
Faisal attributed the shortfall to fading seasonal spending after Ramadan (the fasting month in March), continued budget tightening, and weak export demand. He warned that unless purchasing power is restored, a return to manufacturing growth could remain elusive until at least early 2026.
While certain sectors, such as basic metals and mineral processing, remain resilient, labor-intensive industries like textiles, footwear, and even food and beverages are starting to feel the strain.
"The root problem is weak demand, both domestically and abroad," Faisal concluded. "We need immediate policy intervention to avoid a prolonged downturn."
Source: https://jakartaglobe.id/business/warning-signs-flash-as-indonesias-factory-sector-contracts-sharpl