Indonesia factory output suffers steepest drop since 2025

Its PMI declined to 46.9 in June.

Indonesia’s manufacturing sector took a marked turn for the worse at the end of the second quarter, as a fresh drop in new orders drove it to steepest fall in output in over a year and forced firms to cut both jobs and purchasing at their sharpest pace in nearly five years.

The headline S&P Global Indonesia Manufacturing Purchasing Managers’ Index tumbled to 46.9 in June from 50.0 in May, signalling a solid deterioration in the health of the goods-producing sector and the most pronounced downturn in a year.

Job losses at their most severe since 2021

Behind June’s slide was a renewed slump in demand for Indonesian-made goods. New orders fell for the first time in three months and at the fastest rate in a year, with firms pointing to weaker customer purchasing power as rising prices bit into household and business budgets. Export orders fared no better, dropping at their steepest rate since August 2021 amidst subdued demand from overseas buyers grappling with higher prices.

With fewer orders coming in, manufacturers made further inroads into their backlogs of work, which shrank for the third time in four months. That weaker pipeline of business led firms to cut output for a fourth consecutive month, and at the sharpest rate since April 2025. Reduced production needs also discouraged stockpiling, with post-production inventories falling for a second straight month, at a quicker pace than in May.

Employment was cut more sharply too, with the rate of job shedding the most marked since September 2021. Purchasing activity fell in tandem, dropping for a fourth month running at its steepest rate since August 2021, as some firms said higher raw material costs were putting them off buying. Pre-production stocks were also run down, with several manufacturers reporting difficulty sourcing and receiving inputs amid mounting price and supply pressures.

On costs, input price inflation accelerated once again, with firms widely blaming pricier raw materials and unfavourable exchange rate swings. The rate of increase was the second-highest since records began in April 2011, and prompted manufacturers to raise their own charges at the fastest pace since September 2013.

Supply chains remained under strain too, with delivery times lengthening for a ninth consecutive month, though the deterioration was the mildest seen so far this year.

Despite the gloomy month, manufacturers grew more optimistic about the year ahead, with confidence climbing to a three-month high on hopes that easing price pressures might eventually revive sales and output.

Usamah Bhatti, economist at S&P Global Market Intelligence, said the health of Indonesia’s manufacturing sector had deteriorated for the second time in three months as the first half of 2026 drew to a close, with the rate of decline the strongest in a year as a renewed fall in new orders drove the steepest drop in output since April 2025.

He added that firms had responded by solidly cutting employment and purchasing activity while running down inventories in the face of weaker demand, even as price pressures stayed historically elevated — with cost burdens rising at the second-fastest pace in the survey’s history, translating into the sharpest rise in factory gate charges in nearly 13 years.