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Indonesia PMI July 2018

Indonesia: Manufacturing PMI edges up in July but output falls

Conditions in Indonesia’s manufacturing sector improved marginally in July, according to the Purchasing Managers’ Index (PMI) released by IHS Markit and Nikkei. The PMI ticked up from 50.3 in June to 50.5 in July, moving slightly further above the 50-point threshold that seperates expansion from contraction in the manufacturing sector.

July’s print reflected employment growth which was the quickest since February. New orders also increased, albeit at a moderate rate. In contrast, output contracted for the first time in six months on limp demand. On the price front, input price inflation intensified in July, linked to the recent depreciation of the rupiah pushing up imported raw material costs. Despite higher cost burdens, output prices increased only modestly due to soft domestic activity, putting firms’ profit margins under pressure. Discouragingly, business sentiment in July remained close to June’s multi-year low.

Commenting on price developments, Economist Aashna Dodhia from IHS Markit said:

“Firms faced sharper inflationary pressures that emanated from the strength of the US dollar against the Indonesian rupiah. […] the Central Bank could remain under pressure to raise interest rates further to protect the rupiah amid uncertainty in global financial markets and wide interest rate differentials.”

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