Indonesia manufacturing flatlines in May as costs near record highs
PMI steadied at neutral 50.0 but production fells for the third straight month.
Indonesia’s manufacturing sector ground to a standstill in May, with the headline PMI recovering only to the neutral mark as soaring input costs and chronic raw material shortages continued to suppress output even as domestic demand showed signs of life.
The S&P Global Indonesia Manufacturing PMI rose to exactly 50.0 in May — the threshold between expansion and contraction — from 49.1 in April, signalling that operating conditions were broadly stable but far from healthy. The reading masked a deeply divided picture: new orders growing whilst production continued to fall.
Cost pressures were the dominant story of the month. Input cost inflation accelerated sharply to the second-highest rate in the survey’s 15-year history, surpassed only by the record set in September 2013. Manufacturers widely attributed the surge to higher raw material prices, and responded by raising their selling prices at the fastest pace since October 2013 — a decision that risks further dampening demand if sustained.
Despite the price environment, new orders rose for the second consecutive month, with growth reaching its strongest level since February. However, analysts cautioned that a portion of the increase reflected clients stocking up preemptively in anticipation of further price rises and supply disruptions, rather than genuine underlying demand growth. International sales told a starker story, falling for the third successive month at the sharpest rate since August 2021 — with the Middle East conflict and elevated prices cited as the key drags on export demand.
Production volumes fell for the third month in succession, though the rate of decline slowed compared with April. Firms struggled to source sufficient raw materials, forcing them to draw down both pre-production and finished goods inventories to fulfil orders. Purchasing activity was curtailed for similar reasons. Supplier delivery times lengthened for the eighth month running as shortages and war-related disruptions continued to hamper supply chains.
With output subdued, backlogs of work rose for the first time since February as firms found themselves unable to clear outstanding orders. Employment was cut for the third month in a row, albeit only marginally, adding further pressure on capacity.
Business confidence about the year ahead improved slightly from April but remained below the long-run survey average. Optimism was largely contingent on an easing of raw material prices and supply constraints, with manufacturers acknowledging considerable uncertainty over when such a recovery might materialise.
Usamah Bhatti, Economist at S&P Global Market Intelligence, said Indonesia’s manufacturing economy remained under significant strain, with production held back by rising raw material prices and limited input availability. He noted that whilst firms recorded stronger sales, this often reflected clients building stocks against price and supply disruption rather than healthy demand growth.
Export sales, he added, had fallen at their steepest rate in nearly five years. Cost inflation had accelerated sharply to levels not seen since the series record in September 2013, forcing manufacturers to raise selling prices at the fastest pace in more than 12 years. Confidence in the outlook, whilst improving, remained below historical norms, and any recovery was seen as dependent on a resolution of current supply and cost pressures.
