Indonesia’s manufacturing activity slowed in September 2025, signaling a fragile recovery despite lingering optimism. The S&P Global Manufacturing PMI dipped to 50.4 from 51.5 in August, hovering just above the expansion threshold. While new orders remain positive, declining output and rising costs suggest that the sector’s rebound is far from secure.
Key Facts & Background:
- PMI Performance:
- September 2025 PMI: 50.4 (down from 51.5 in August)
- Still in expansion territory, but momentum is weakening
- Follows four consecutive months of contraction earlier in 2025
- Production Trends:
- Output declined for the first time in three months
- New orders remained positive, supporting modest industrial activity
- Labor Market:
- Employment rose to its highest level in four months
- Reflects business optimism and long-term workforce planning
- Inventory and Purchasing:
- Companies increased input purchases and finished goods inventory
- Aimed at hedging against future price hikes and preparing for demand recovery
- Cost Pressures:
- Input costs surged to their highest level since February 2025
- Driven by raw material inflation and import-related expenses
- Some producers raised selling prices despite tepid demand
- Supply Chain Dynamics:
- Delivery times improved, indicating better logistics performance
- Production capacity remains constrained, limiting output scalability
- Business Sentiment:
- Optimism for the next 12 months reached its highest since May
- Fueled by expectations of domestic and global market stabilization
Strategic Insights:
Indonesia’s manufacturing sector is navigating a delicate phase of recovery, marked by cautious optimism and persistent structural challenges. The slight dip in PMI reflects a slowdown in momentum, particularly in output, which remains vulnerable to demand fluctuations and cost volatility. While the index remains above the contraction threshold, the underlying signals point to a sector still regaining its footing.
The uptick in employment and inventory accumulation suggests that manufacturers are preparing for future growth, even as current conditions remain mixed. This forward-looking behavior indicates confidence in long-term market prospects, but also highlights the need for strategic planning to manage cost pressures and supply chain risks. Rising input costs—driven by global commodity trends and currency fluctuations—pose a significant threat to margins, especially for small and medium enterprises.
Improved delivery times and supply chain efficiency are encouraging signs, suggesting that logistical bottlenecks are easing. However, limited production capacity continues to constrain output, underscoring the importance of investment in technology, infrastructure, and workforce development to enhance scalability.
The resilience of business sentiment is a critical asset. As firms anticipate a more stable domestic and international environment, there is potential for renewed capital expenditure and innovation. Policymakers can support this momentum by ensuring macroeconomic stability, facilitating access to affordable financing, and streamlining regulatory frameworks that enable industrial competitiveness.