After four months of contraction, Indonesia’s manufacturing sector has returned to expansion territory, signaling renewed momentum in Southeast Asia’s largest economy. The August 2025 PMI reading of 51.5 marks a critical turning point, driven by rising production and new orders. As global manufacturing grapples with weak demand and inflationary pressures, Indonesia’s rebound offers cautious optimism for the region.
Key Facts & Background:
- Indonesia’s Manufacturing Purchasing Managers Index (PMI) rose to 51.5 in August 2025, up from 49.2 in July, indicating expansion after four months of contraction.
- The sector had previously contracted since April 2025, when PMI fell to 46.7.
- The improvement was driven by increased production, stronger domestic and export orders, and renewed hiring activity.
- Export orders grew at the fastest pace in nearly two years, prompting firms to boost purchasing and reduce finished goods inventories to meet demand.
- Input cost inflation remained subdued, near its lowest level in five years, despite pressure from a stronger US dollar.
- Companies responded by raising output prices at the fastest rate since July 2024 to protect margins.
- Regional PMI readings in August 2025 show mixed performance:
- Thailand (52.7), Philippines (50.8), and Myanmar (50.4) remained in expansion.
- Japan (49.7), Taiwan (47.7), China (49.4), and South Korea (48.3) stayed in contraction, largely due to weak demand.
- S&P Global economists noted signs of stabilization, with firms in Japan and Indonesia cautiously optimistic about future output growth.
Strategic Insights:
Indonesia’s Manufacturing Rebound: A Signal of Resilience
Indonesia’s return to expansion territory in August 2025 reflects underlying resilience in its industrial base. The PMI uptick, driven by both domestic and export demand, suggests that manufacturers are responding proactively to shifting market conditions. The fastest growth in export orders in nearly two years highlights Indonesia’s positioning within global supply chains, particularly in sectors like textiles, electronics, and resource-based manufacturing.
Operational Adjustments Reflect Strategic Agility
Manufacturers increased purchasing activity and workforce size to accommodate rising production needs, while drawing down inventories to fulfill orders. This operational shift indicates confidence in near-term demand and a willingness to invest in capacity. The decline in finished goods inventories also suggests leaner supply chain management and improved responsiveness to market signals.
Inflationary Pressures and Pricing Strategy
Despite a strong US dollar pushing up import costs, input price inflation remained near historic lows. Companies responded by raising output prices at the fastest pace in over a year, balancing margin protection with competitive pricing. This pricing agility will be crucial as global inflation trends remain volatile and consumer purchasing power fluctuates.
Regional Divergence and Demand Challenges
While Indonesia, Thailand, and the Philippines posted expansionary PMI readings, major economies like Japan, China, and South Korea remained in contraction. The common thread across these markets is subdued demand—both domestic and external. Indonesia’s ability to buck this trend may stem from its diversified export base and relatively strong internal consumption, but sustained recovery will depend on broader global demand normalization.
Outlook: Cautious Optimism with Structural Implications
The August PMI rebound offers a cautiously optimistic outlook for Indonesia’s manufacturing sector. Firms are hopeful about continued output growth over the next year, supported by expectations of economic improvement and stronger consumer demand. For policymakers and investors, this signals an opportunity to reinforce industrial competitiveness through infrastructure, innovation, and trade facilitation.