Indonesia's Manufacturing Conditions Continue to Improve

December data indicated that manufacturing operating conditions in Indonesia improved for the fourth successive month. Underpinning the latest expansion was a renewed growth of output and increased new order levels. Export demand broadly stabilised, after contracting in each of the previous six months.

 

Up from 50.3 in the previous month to 50.9 in December, the seasonally adjusted HSBC Indonesia Purchasing Managers’ Index (PMI) posted above the crucial 50.0 threshold for the fourth consecutive month.

 

The latest reading was consistent with only a slight improvement in operating conditions, but one that was more pronounced than in November. Furthermore, the PMI average for the last quarter of 2013 was above that seen for Q3.

 

Output increased in December, amid evidence of higher levels of incoming new work. However, the overall rate of expansion was only fractional as panellists reported competitive pressures and a difficult economic climate.

 

New orders rose in December, marking a three-month sequence of growth. Although moderate and slower than in November, the rate of expansion was above the series average. Evidence suggested that the domestic market remained the key source of new order growth.

 

After dropping in each of the previous six months, export business stabilised in December. This was indicated by the index measuring overall export orders posting only fractionally below the 50.0 no-change mark.

 

Manufacturers signalling higher new orders from abroad commented on stronger demand from Japan, Pakistan and Arab countries. Those firms indicating a reduction largely cited increased external competition.

 

Indonesian goods producers signalled no change in employment levels during December. This followed a four-month period of job cuts. Meanwhile, backlogs of work fell in the latest month, following a marginal accumulation recorded in November. Anecdotal evidence highlighted a general lack of pressure on operating capacity.

 

On the price front, higher input costs and output charges were signalled in December. Purchase prices rose at a sharp rate, but one that was the slowest since August. Survey respondents continued to report higher import costs as a result of a weaker currency. The latest rise in charges was also the slowest in four months and much weaker than that seen for costs.

 

Indonesian manufacturers increased their buying activity in December, stretching the current period of growth to four months. Despite being moderate, the pace of expansion was greater than its average.

 

Concurrently, holdings of raw materials and semifinished goods rose. The overall rate of growth was, however, only slight.

 

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