Beware, RI Manufacturing is at the Edge of the Abyss!

Jakarta, CNBC Indonesia – Indonesia’s manufacturing industry activity is still in the expansion zone. But the expansion continues to thin out.

On Friday (1/7/2022), S&P Global announced that manufacturing activity as measured by Indonesia’s Purchasing Managers’ Index (PMI) for the June 2022 period was at 50.2. PMI uses the number 50 as a benchmark. If it is still above 50, it means that it is in the expansion zone.

However, the June achievement fell compared to the previous month which was recorded at 50.8. Indonesia’s manufacturing PMI score has indeed been above 50 for 10 consecutive months, but this month is the lowest.

“The PMI is at its lowest during a period of expansion, just barely above the neutral 50 zone. There has been little improvement, namely in the health sector,” said the S&P Global report.

Manufacturing production and new orders (new orders) grows, but only thinly. In fact, the growth in new orders was the lowest in the 10-month expansion period.

Inflationary pressures, according to the S&P Global report, were felt in June. Higher raw material prices lead to scarcity, costing input swollen.

On the other hand, the increase in the Value Added Tax (VAT) rate from 10% to 11% added to pressure on the price side. The business world is forced to pass this increase on to consumers through selling prices.

Another thing that deserves attention is job creation. In June, there was a decline in the workforce after five straight months of expansion. At the same time, the amount of work done has decreased slightly.

“New orders are at their weakest in a 10-month expansion period. Export demand contracted to its lowest point since September 2021.

“Pricing pressures are still a complaint from the business world, where they have to pass on increased raw material costs to consumers. Price increases are a downward risk (downside risk) to manufacturing growth, which could worsen when domestic demand takes a hit. If this happens, the Indonesian manufacturing sector will lose its growth momentum,” said Laura Denman, Economist at S&P Global Market Intelligence, as quoted in a written statement.