The roar of manufacturing in the country grew louder through the end of 2023, a sign that national industry players are increasingly optimistic in running their businesses amid global geopolitical and geo-economic impacts. This confidence is reflected in Indonesia's Manufacturing Purchasing Managers' Index (PMI) released by S&P Global, which stood at 52.2 in December, up 0.5 points from 51.7 in November.
“Alhamdulillah, Indonesia's manufacturing PMI has remained in expansion for 28 consecutive months. Only Indonesia and India have maintained a level above 50 for more than 25 months. We must maintain and improve this good performance,” Minister of Industry Agus Gumiwang Kartasasmita said in Jakarta on Tuesday (2/1).
The Minister said manufacturing conditions in Indonesia keep improving, supported by various strategic government policies that are on the right track. “Our manufacturing could move faster at the end of 2023. We are also optimistic that 2024 will be even better,” he said.
However, Agus explained that some policies have not worked as industry hoped, including the Certain Natural Gas Price (HGBT). Many industrial companies have yet to benefit from the USD 6 per MMBTU gas price. “In 2023, only 76.95 percent in western Java, or around 939.4 BBTUD, was paid at USD 6.5 per MMBTU; the rest had to be paid at the normal price of USD 9.12 per MMBTU,” he said.
Moreover, in practice many industrial sectors receive lower gas volumes than contracted with suppliers. “The HGBT policy has not been implemented as we wanted; it is far from ideal in our eyes. This mess around HGBT certainly reduces our industrial competitiveness,” Agus explained.
The Minister added that the other policy needed is import control. “We believe our PMI could be much higher if HGBT and import controls worked well, because our manufacturing sector faces opportunity loss from both. In addition, policies are needed to maintain raw material availability so our manufacturing keeps producing well to serve domestic and export markets,” he added.
The positive year-end PMI is in line with the December 2023 Industrial Confidence Index (IKI) released earlier by the Ministry of Industry, which reached 51.32, consistently in expansion for more than 13 months since IKI was launched. Kemenperin is targeting processing industry growth of 5.80 percent in 2024, the Year of the Wood Dragon, higher than the 4.81 percent target in 2023.
In its report, S&P Global said Indonesia's manufacturing PMI expansion in the last month of 2023 was due to fairly high demand, including from abroad. This drove faster production growth and more hiring.
Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, said Indonesia's manufacturing sector closed the final quarter of the year on a positive note, as incoming new orders and output both expanded at solid rates. This strengthened purchasing activity and drove sustained employment growth across goods-producing sectors, supporting further improvement in economic activity.
“Forward-looking PMI indicators, including backlogs of work and future output indices, also show a positive trend. In particular, overall business confidence rose to its second-highest level in a year, while a slight accumulation of work backlogs reflects improving demand conditions,” she said.
Source: Press Release of the Ministry of Industry of the Republic of Indonesia