Indonesia’s factories rev up to fastest pace in February as export orders rebound

This is the country's strongest manufacturing PMI reading since March 2024.

Indonesia's manufacturing sector accelerated to its strongest pace in nearly two years in February, as the surge in new orders drove output, employment and purchasing activity sharply higher.

The S&P Global Indonesia Manufacturing Purchasing Managers' Index climbed to 53.8 in February from 52.6 in January, its highest reading since March 2024 and a result that analysts described as boding well for the months ahead.

New orders have now grown for seven consecutive months, with the rate of expansion in February reaching its quickest since last November as manufacturers reported a broader and more confident customer base.

Particularly notable was the return of export demand.

Foreign orders rose for the first time in six months, and at the steepest rate since May 2022, suggesting that the improvement in Indonesia's manufacturing fortunes is no longer solely dependent on the domestic market.

Firms attributed the pickup to improved conditions in international markets, though they gave few specifics beyond reporting that client confidence had lifted.

The surge in demand fed swiftly through to the factory floor. Output expanded at its fastest rate since April 2024, with firms citing rising new orders as the primary driver of increased production.

Manufacturers also used the stronger activity as an opportunity to build up their stocks of finished goods, with post-production inventories rising for the fourth month running as companies positioned themselves for anticipated further demand increases.

Employment rose for the sixth time in seven months and at its most prominent rate since November, as firms took on additional workers to help manage the step-up in production.

The combination of higher staffing and accelerating output was sufficient to keep the accumulation of unfinished work broadly flat, a sign that capacity is — for now — keeping reasonable pace with the order books.

Purchasing activity expanded at its sharpest rate in just under two years as firms stocked up on inputs, though the supply side of the equation showed some strain.

Delivery times lengthened for the fifth month in succession, with manufacturers pointing to shipping delays and the disruptive effects of flooding as factors slowing the flow of materials. The continued deterioration in supplier performance is a pressure point that could constrain output growth if it persists.

On prices, there was modest encouragement. Input cost inflation, whilst still sharp, eased to a six-month low as raw material price increases moderated slightly. Firms responded by keeping their own selling price rises modest, in a deliberate effort to remain competitive in a market where they are still working hard to consolidate demand gains.

Looking further ahead, confidence about the 12-month outlook dipped back slightly from January's level and fell below the survey's long-run average — a reminder that manufacturers, despite the positive data, are not yet taking sustained recovery for granted.

The broader mood remained one of robust optimism, however, anchored in expectations of firmer demand and more stable prices as the year progresses.

Usamah Bhatti, Economist at S&P Global Market Intelligence, said demand conditions were positive across the board, with growth in sales contributing to increases in production, employment and purchasing activity.

He noted that cost pressures, whilst still steep, were showing the first signs of easing — a development that, if sustained, would give manufacturers greater room to invest and expand capacity in the months ahead.