Indonesian Manufacturing PMI Rises to 50.2 as of July 2026, but Recovery is Relatively Thin

Illustration. (Photo: Dok. Antara)

JAKARTA - Indonesian manufacturing activity again entered an expansion phase in July 2026 after having declined in the previous month.

However, the recovery of the industrial sector is still considered to be gradual due to the increase in the cost of raw materials, the weakening of export demand and the caution of business actors in purchasing raw materials still limit the growth rate.

Based on the report, S&P Global Indonesia Manufacturing Purchasing Manager's Index or PMI Indonesia Manufacturing rose to 50.2 in July 2026 from 46.9 in June.

The figure above the 50 level indicates that the manufacturing operational conditions have improved again at the beginning of the third quarter of 2026.

The improvement was supported by the return of production volume growth after four months of contraction. However, the rate of increase is still relatively low.

S&P Global noted that the increase in production was driven by the improvement in demand conditions and increased customer confidence. However, the increase in raw material prices is said to still hold back the pace of expansion.

"July survey data shows an increase in production volume in Indonesia's manufacturing sector, which is partly influenced by the stability of new order receipts," said S&P Global Market Intelligence Economist Usamah Bhatti in a statement quoted on Monday, August 3.

At the same time, new order volumes managed to stabilize after contracting quite deeply in June. A number of companies reported an increase in sales as customer confidence strengthened and a number of new projects began.

However, competition is getting tighter in obtaining orders and rising selling prices are still a factor that holds back demand growth.

"Companies are seeing signs that client confidence is starting to strengthen. However, stronger expansion is still somewhat held back by the impact of ongoing price increases," said Bhatti.

On the other hand, new export orders again declined, extending the contraction trend to five consecutive months.

The stable demand has also started to increase pressure on production capacity. This is reflected in the increase in work backlog which is the highest since November 2025.

As production loads increase, Bhatti said, the company is starting to re-recruit labor for the first time in the last five months, although the number of additions is still limited.

"Another positivism is seen from the increasing number of workers who ended the four-month period of labor reduction," he said.

At the same time, inventories of finished goods declined again as manufacturers utilized available stocks to meet orders.

Even though production activities have started to recover, industrial players are still cautious in purchasing raw materials.

The buyback activity fell for the fifth consecutive month, influenced by the increase in raw material prices and supply constraints.

A number of companies also chose to reduce their raw material inventories as a form of adjustment to the conditions of demand that have not fully recovered. This step is taken to maintain efficiency as long as the flow of new orders is still likely to be weak.

On the supply chain side, the delivery time of raw materials has been extended for the tenth consecutive month due to delays in shipments from suppliers.

However, the rate of slowing shipments was the lightest during the period, as the supply of raw materials at a number of companies began to improve.

Production cost pressures are also still looming over the manufacturing industry. S&P Global noted that input price inflation remained at a fairly high level even though it slowed to the lowest level in the last four months.

The increase in costs was triggered by rising raw material prices in both the domestic and international markets.

The strengthening of the US dollar also increased the cost of importing raw materials, thus encouraging manufacturers to raise selling prices again to maintain business margins.

Despite still facing various challenges, the outlook for manufacturing in the coming year is still positive.

The level of optimism of business actors increased to the highest level since January 2026.

"Corporate confidence reached its highest level in six months, supported by expectations that sales growth and client confidence will strengthen further," he said.

The optimism, continued Bhatti, is driven by expectations that sales growth and customer confidence will continue to improve, accompanied by the hope that raw material price pressures will ease in the coming months.

"Some manufacturers hope that price pressure can ease again to support growth. Developments in the Middle East region will also remain an important factor to be considered in the coming months," he concluded.