Local demand anchors Indonesia’s manufacturing breakout

The market sustained its growth in January.

Indonesia's manufacturing sector sustained its upward trajectory at the start of 2026, with production and new orders rising at faster rates, though a decline in international sales suggests the recovery is being driven almost entirely by the domestic economy.

The Purchasing Managers' Index from S&P Global climbed to 52.6 in January from 51.2 in December, marking a sixth consecutive month of improvement and signalling a stronger rate of growth in business conditions. The reading indicated moderate expansion in the sector.

New orders rose for the sixth straight month, strengthening from December's pace as companies reported firmer market demand and increased requests for goods. However, the upturn appeared to be domestically driven, with export sales falling for a fifth consecutive month. Manufacturers cited tariffs as weighing on overseas demand.

Production volumes expanded for a third consecutive month, rising at the second-fastest pace in 11 months as firms responded to increased order requirements. Companies also stepped up their purchasing activity for the sixth month running and built up stocks of both raw materials and finished goods in preparation for future production needs amid stronger demand conditions.

However, capacity pressures intensified as backlogs of unfinished work rose for a third straight month. These strains were exacerbated by a renewed decline in employment—the first reduction in six months—though the fall remained marginal.

Supply chains came under significant strain, with delivery times from suppliers lengthening to the greatest extent in more than four years. Companies blamed increased input demand and poor weather conditions for the deterioration in supplier performance.

On the pricing front, input costs rose at a marked rate, little changed from December and below the long-term average. Manufacturers attributed higher costs to broad-based increases in raw material prices. Firms passed on some of these costs to customers, though selling prices rose only modestly and at the slowest pace in three months.

Despite the challenges, business confidence strengthened notably. Optimism regarding the 12-month production outlook improved to a ten-month high, with firms expecting current demand conditions to continue throughout the remainder of the year.

Usamah Bhatti, economist at S&P Global Market Intelligence, said Indonesia's manufacturing economy improved at a moderate pace during January. "Once again, the expansion looks to have been led by the domestic economy, given a sustained contraction in new export sales," he noted. "Firms were confident that the firmer demand conditions seen at the start of 2026 would continue over the remainder of the year."

The survey polled around 400 purchasing managers across Indonesia's manufacturing sector.