Indonesia: Manufacturing recovery in doubt amid virus surge

  • Factory activity is projected to contract in the third quarter of the year, ending an expansionary trend seen in the first two quarters, following the enactment of new COVID-19 emergency public activity restrictions (PPKM Darurat) that are also expected to hurt overall business activity.
  • Bank Indonesia’s (BI) Prompt Manufacturing Index (PMI-BI), a gauge of factory activity, is expected to drop to 49.9% in 3Q21, from 51.5% in 2Q21.
  • A reading above 50 indicates expansion and below 50 indicates contraction. The BI business activity survey’s (SKDU) net weighted balance (SBT) — an indicator used to project business sentiment — is also expected to drop to 9.8% from 19.0% in the same period.
  • “BI will continue to monitor the impacts of the PPKM Darurat, which will potentially affect the PMI in the next quarter. The PMI-BI decline is likely to be caused by a decrease in production volume, goods stock volume and manpower,” the central bank said in a press statement.
  • BI wrote in a separate statement on that the SBT was expected to go down in 3Q21 as the trade, hospitality, restaurant, finance, real estate and corporate services industries experienced muted growth because of the PPKM Darurat policy.
  • Meanwhile, the processing, agriculture, plantation, livestock, forestry and fisheries industries are likely to see a contraction in business activity.
  • The restrictions are currently slated to last two weeks, but Finance Minister Sri Mulyani Indrawati recently said the government was mulling over the option of prolonging the policy to four to six weeks — ending in mid-Aug 21 at the latest — to further curb the spread of COVID-19.
  • The government has slashed the country’s gross domestic product growth projection to between 3.7% and 4.5% from the initial target of 4.5% to 5.3% for 2021 because of the rapid spread of the Delta variant.

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