Indonesian Manufacturing PMI Plunges due to Middle East Conflict
JAKARTA - Indonesia's manufacturing performance has declined further due to the war and has contracted.
The world rating agency, Standard & Poor's Global Ratings (S&P) reported that Indonesia's manufacturing Purchasing Manager's Index or PMI in April fell to 49.1 on a monthly basis, down from March's 50.1.
"Indonesia's manufacturing sector is beginning to feel the increasingly intense inflationary pressure in the midst of the Middle East war," said S&P Global Market Intelligence Economist Usamah Bhatti in a written statement, Monday, May 4.
S&P assessed that the decline in production in early the second quarter of 2026 was caused by rising prices, a shortage of raw material supplies, and a weakening of purchasing power due to the war in the Middle East.
The production decline was the second in two consecutive months. S&P noted that the rate of production decline increased from March and continued to accelerate since May last year.
The increase in cost burden was the largest factor in the decline in manufacturing production in April since 2022, driving the largest price increase in 12.5 years.
In addition, S&P noted that input cost inflation reached the highest level in four years. Companies responded to rising input costs by significantly raising selling prices since October 2013.
Goods manufacturers have also slightly reduced their purchasing activities in response to the decline in output requirements. Delivery delays and supply shortages have led companies to use existing pre-production inventories to support production.
At the same time, finished goods stocks rose because companies kept unsold goods as inventory.
The company noted that delivery delays and a shortage of raw materials due to the war had burdened supplier performance during April. As a result, delivery times from suppliers have been extended for seven consecutive months.
Responding to the production decline, the company reduced its employment level in April.
The level of layoffs is considered moderate but the largest in the last ten months. At the same time, the company recorded a further decline in the backlog of unfinished work.
In the same month, S&P recorded a small increase in new orders although it was generally related to initial orders to avoid price increases and supply disruptions. The improvement was supported by the domestic market, as new export orders declined.
Furthermore, the S&P survey stated that Indonesia's manufacturing sector remains optimistic that there will be an increase in production volume over the next 12 months. However, this level of confidence has dropped to its lowest level in the last five months.
The optimism is driven by the launch of new products and the hope of ending the conflict in the Middle East despite concerns that the war will continue.