The world of business and manufacturing is still in expansionary mode

In the midst of the long Eid holiday and heating up relations between Israel and Iran, Indonesia's manufacturing industry remains expansive.

KOMPAS/AGUS SUSANTO

Residents pass by Hyundai manufacturing plant in the GICC industrial area in Bojongmangu district, Bekasi regency, West Java, on Thursday (7/3/2024). Hyundai has invested a total of 3 billion US dollars in Indonesia for the development of an electric vehicle ecosystem.

JAKARTA, KOMPAS — S&P Global Indonesia in its research stated that the Purchasing Managers' Index (PMI) for Indonesia in April 2024 was recorded at the level of 52.9. This shows that Indonesia's manufacturing industry is in an expansive position which has persisted for 32 consecutive months. However, Indonesia is still overshadowed by the decline in manufacturing export performance.

In their press release on Thursday (2/5/2024), Director of Economics at S&P Global Market Intelligence, Paul Smith, explained that overall, April 2024 was a positive month for Indonesian manufacturing. This was supported by increased production and demand since March 2024 at a good level, amidst positive demand condition reports. Additionally, the business world continues to drive purchasing and increase stocks in anticipation of growth in the coming months.

Although still in an expansive mode, Indonesia's PMI in April 2024 decreased compared to March 2024 which was 54.2. A PMI value above 50 indicates the industry is in an expansive position, while below 50 indicates the opposite.

"There are other obstacles causing the PMI value to decrease. This is caused by a decline in manufacturing export performance. The growth rate of production and new demand has also decreased. This condition has led companies to reduce the number of workers," said Paul.

Also read: In the month of Ramadan, the manufacturing industry starts to grow

Although the PMI in Indonesia decreased this month, according to the Minister of Industry Agus Gumiwang Kartasasmita, PMI in April 2024 still classified as good. Moreover, in April, there will be a 10-day holiday in Indonesia during the Idul Fitri period which causes reduced and suboptimal work in the manufacturing industry. The manufacturing industry, psychologically, is also disrupted by geopolitical tensions in the Middle East.

"This is a very healthy and solid figure," he said when giving a speech at the Small and Medium Industry (IKM) Food and Furniture Business Matching event at the Ministry of Industry, Jakarta, Thursday.

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Purchasing Managers' Index (PMI) Indonesia April 2024. Source: S&P Global Indonesia

It should be noted that the 32 consecutive months of expansion indicate that the manufacturing industry has resilience and can continue to operate despite various challenges. Indonesia is one of the two countries that has recorded an expansive PMI for 32 consecutive months, along with India. Indonesia's PMI figures are also higher than the average of other Southeast Asian countries, which are at level 51.

The expansion of the manufacturing industry is in line with the Industry Confidence Index (IKI) survey in April 2024, released by the Ministry of Industry on Monday (29/4/2024). The IKI value in April 2024 is at 52.3, a decrease of 0.75 points compared to March 2024.

"Despite its slowed expansion, this is a good sign for the industry amidst the current global business climate," said Ministry of Industry spokesperson Febri Hendri Antoni Arif.

Febri explained that the decrease in the IKI value is influenced by the decrease in the value of new orders and product inventory variables. The IKI value of new order variables decreased by 2.32 points to 51.93, the lowest this year. Meanwhile, the IKI value of the product inventory variable decreased by 1.61 points to 54.02.

Also read: Expansive Business World Approaching the End of the Year

Unlike the other two variables, the IKI value of the production variable increased by 2.43 points to 51.76. This is due to the optimal absorption of inventory in March, which slowly began to be reproduced. However, the increase in production costs, such as raw material costs, energy, and increased logistics costs, certainly affects the selling price and production decisions.

IKI is an indicator of the condition of the processing or manufacturing sector released at the end of each month by the Ministry of Industry since November 2022. Each company from various industrial sub-sectors is required to send data on its company's condition, which will then be processed into the IKI. The indicator variables measured include new orders, production, and product inventory.

KOMPAS/P RADITYA MAHENDRA YASA

Like a rubber reservoir entering the freezing process at the rubber processing plant PT Perkebunan Nusantara IX, Kebun Ngobo, Semarang Regency, Central Java, on Wednesday (26/7/2023). This factory processes rubber with a production capacity of 4.5 tons per day to become semi-finished goods. The processed rubber products from this factory are mostly for export markets and manufacturing industries.

Retail sector

The continuously improving manufacturing industry has been recognized by Budihardjo Iduansjah, the Chairman of the Association of Retailers & Tenants of Indonesian Shopping Centers (Hippindo). According to him, the retail sector is currently improving even after the pressure of the pandemic. "This condition can even be said to have exceeded 2019," he said.

This condition is in line with the latest Real Sales Index (IPR) data. The value of the February 2024 IPR was at level 214.1, or grew by 6.4 percent annually. The performance of retail sales was driven by the growth of the food, beverage, and tobacco group; the information and communication equipment group; and the cultural and recreational goods group which improved despite still being in the contraction zone.

On a monthly basis, retail sales grew by 1.7 percent compared to the previous month, mainly driven by the food, beverage, and tobacco group; the information and communication equipment group; as well as the arts and recreation group, in line with the increasing activities of the community during the Imlek period, the 2024 Election, and preparations for the needs ahead of Ramadan.

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Retail Sales Survey March 2024. Source: Bank Indonesia

Also read: Manufacturing Industry Targeted to Grow 5.8 Percent in 2024