Indonesian manufacturing sector barely grows in December 2025

JAKARTA: The Indonesian manufacturing sector concluded 2025 on a weaker note, despite the Christmas and New Year holidays, with export orders declining for a fourth consecutive month.

The manufacturing purchasing managers’ index (PMI) report by S&P Global, released last Friday, showed the index dipping to 51.2 points in December from a reading of 53.3 in the preceding month.

The report is based on a survey of purchasing managers from around 400 manufacturing companies nationwide.

The PMI captures the sector’s performance, with values above 50 indicating rising factory activity and values below that threshold showing a contraction in production.

Indonesia’s manufacturing PMI reflected a contraction in activity from April through July, and then conditions improved in August.

The November reading was the strongest since February 2025.

However, the momentum halted again in December in spite of the year-end festivities, which typically lead to a seasonal peak in household spending.

While overall factory activity continued to increase in December, some respondents said their businesses experienced supply shortages and higher prices of materials that limited the pace of growth.

“Firms recorded further modest expansions in new orders, employment and purchasing, though saw production increase only marginally, as some companies noted the impact of raw material scarcity,” said Usamah Bhatti, an economist with S&P Global Market Intelligence.

Some companies noted that delivery delays, partly due to adverse weather, had weighed on vendor performance.

Staffing numbers increased in December as manufacturers sought to meet higher demand but “the rate of job creation was slight” and eased from a month prior, according to the report.

It noted, however, that the pace of hiring was “in line” with the year’s average.

Much like the previous few months, the domestic market carried the weight of manufacturing growth in December, given that new export orders dwindled for the fourth month running.

Data from Statistics Indonesia (BPS) showed that exports dropped 2.31% year-on-year in October, partly because of weakening prices of coal, one of Indonesia’s key export commodities, throughout the year.

In general, the surveyed companies expressed confidence that production volumes would increase in 2026, moderately increasing purchasing activity and planning to expand inventories in anticipation of a further rise in demand.

“The outlook for 2026 also improved as manufacturers signalled the strongest degree of optimism in three months,” said Bhatti.

He explained that these “positive expectations” led to inventory expansion, as manufacturers wanted to “remain efficient in the production and completion of orders”.

Syafruddin Karimi, an economics professor at Andalas University in Padang, West Sumatra, said that when the manufacturing PMI decreased, “the economy is not necessarily weakening. What changes is the momentum”.

“This signal transmits a preliminary warning that business actors are holding back expansion, and policymakers have to respond before a slowdown turns into capacity damage,” Syafruddin said.

He noted that three factors could generally lead to a decrease in PMI: declining domestic demand, falling export orders or rising input prices, with the latter typically caused by a weakening currency, increasing energy prices or logistical disruptions.

Syafruddin said it was important for policymakers to identify which of these factors were at play, “since the diagnosis will determine the therapy”.

For example, he explained that weaker domestic demand, reflected in households postponing purchases of durable goods, required a different government response to a decline in exports resulting from trade fragmentation.

He added that the government, the central bank and the private sector all had their work cut out for them in handling the weak manufacturing growth, noting that a decreasing PMI was “an alarm signal and required fast decisions, not long-winded rhetoric”.

Permata Bank chief economist Josua Pardede highlighted that supply disruption had “not fully eased up” since suppliers’ delivery times had lengthened again, in some cases due to adverse weather, “so the risk of delays is still there”. — The Jakarta Post/ANN