• In line with our expectation, Indonesia’s manufacturing sector began 2025 on a stronger note, as indicated by the S&P Global Indonesia Manufacturing PMI, which climbed to 51.9 in January, up from 51.2 in December 2024. This marks the second consecutive month of expansion and the strongest pace of growth since May 2024, signaling solid factory activity despite ongoing global economic uncertainties.
• ⁠The increase in manufacturing activity can be attributed to seasonal factors that typically drive production in the first quarter of the year. The year-end effect, combined with preparations for Ramadan and Lebaran festivities, has historically led to higher demand, prompting businesses to add production and purchasing activity. This cyclical trend often supports industrial activity well into March or early April, maintaining momentum in the sector.
• In anticipation of increased demand, firms raised their purchasing activity, ensuring sufficient raw materials and inventories ahead of the fasting month in March. This strategic move reflects business confidence in the near-term economic outlook, as manufacturers position themselves to capitalize on heightened seasonal consumption.
• ⁠Employment conditions also improved, with hiring activity rising at the fastest pace in two and a half years. This expansion in the workforce underscores efforts to boost production capacity. However, it was not ample to clear all outstanding workloads, leading to modest increased backlogs, possibly due to supply chain constraints or production delays.
• On the price front, input cost inflation remained noticeable, though it eased to a three-month low, suggesting less pressure from raw materials costs. At the same time, output charge inflation stayed modest, hitting its lowest level in three months, indicating that manufacturers are keeping final product prices in check to maintain competitiveness amid steady demand.
• ⁠⁠Looking forward, business sentiment, however, could be dented by stronger-than-expected USD, propelled by Trump’s trade war which is inflationary in nature. Thus, as the festive season demand cycle ends, factory activity is likely to moderate as post-Ramadan demand normalizes. Overall, the latest PMI data highlights a seasonally driven yet broadly optimistic outlook for Indonesia’s industrial sector. However, cost pressures on thre back of IDR depreciation and production bottlenecks remain key challenges that warrant close monitoring.