Manufacturing growth in the last few months of 2022 showed positive signals. This is reflected in the rising expansion trend of the Industrial Confidence Index (IKI) since its launch in November 2022, and in the S&P Global Manufacturing Purchasing Manager’s Index (PMI), which has shown expansion since September last year. This is also in line with manufacturing GDP growth of 4.83% in Q3 2022.
At the start of 2023, manufacturing performance showed expansion. IKI in January 2023 stood at 51.54, up sharply from 50.9 in December 2022. 71.4% of companies said general business conditions were stable or improving in January 2023. “If conditions continue like this, we are optimistic manufacturing will grow around 5.3% this year. Although global growth in 2023 is expected to slow, positive economic growth in several major partner countries in Q3/2022, such as China, Japan and the United States, is also a signal supporting manufacturers' optimism to keep expanding in 2023,” Ministry of Industry spokesperson Febri Hendri Antoni Arif said at the January 2023 IKI Release in Jakarta on Tuesday (31/1).
IKI is an indicator of manufacturers' confidence or optimism about economic conditions. It describes the condition of manufacturing and the business outlook for the next six months in Indonesia. “We hope IKI reflects current industrial conditions to help create quality policies based on facts on the ground,” Febri said.
According to January 2023 IKI data, the rise was driven by 12 expanding industrial subsectors, contributing 80.1% of national manufacturing GDP in Q3-2022. The Beverage Industry and the Pharmaceuticals, Chemical Medicines and Traditional Medicines Industry, which previously contracted, expanded this January. Conversely, Repair and Installation of Machinery and Equipment contracted this month.
Of 23 manufacturing subsectors, 17 had a positive trend or rising IKI values. The three with the largest increases were other transport equipment; motor vehicles, trailers and semi-trailers; and printing and reproduction of recorded media. New orders in the motor vehicles, trailers and semi-trailers industry came mostly from domestic orders, at 77%.
The rise in IKI in January 2023 occurred across all component variables. Manufacturing confidence rose due to increased new orders (index 51.14), increased production (index 50.35) and lower product inventory volume (index 54.34). The fairly high rise in January 2023 IKI came from the New Orders variable, up 1.07 from 50.07 in December 2022, presumably because many industries renewed contracts and received new orders. The second-largest increase was in Production, at 0.32.
On that occasion, the Ministry of Industry spokesperson said expectations for business conditions over the next six months remain optimistic, and the share of companies answering pessimistic continues to fall. “However, the textile and apparel industry remains at contraction level, although its IKI trend is rising. Kemenperin is encouraging government spending on the textile sector alongside preparations to meet Eid demand, and is also seeking alternative markets to boost textile and apparel exports,” Febri said.
Febri added that manufacturing performance improved due to rising demand supported by sustained domestic purchasing power. This supported higher production and contributed to positive growth in several subsectors at the end of 2022. The spokesperson hopes higher production will boost job creation and household consumption so economic growth keeps rising.
He also hopes industry associations will mobilize their members to actively fill in IKI, as fast systematic responses are needed. “We also urge all industrial companies to report their industrial conditions regularly, and officials within the Ministry of Industry to use IKI as much as possible, as IKI will be Kemenperin's reference,” he said.
The Secretary of the Directorate General of Metal, Machinery, Transport Equipment and Electronics Industries (ILMATE) at Kemenperin, M. Arifin, said the expansionary IKI shows manufacturing remains resilient and is a good start, especially in the ILMATE sector. Several ILMATE sectors expanded strongly, supported by accelerated infrastructure and construction projects, optimism about post-COVID-19 recovery, and more orders after PPKM restrictions were eased or lifted. “The heavy equipment industry also grew due to high demand from mining, construction and plantations,” Arifin explained.
However, unlike most other ILMATE subsectors, the easing of PPKM actually reduced orders for Computers, Electronic and Optical Products as people returned to Work from Office (WFO). In addition, there was no government procurement in January. “We remain optimistic that this sector will rise again in the coming months,” he concluded.
Source: Press Release of the Ministry of Industry of the Republic of Indonesia