Despite the global economic slowdown in 2023, positive economic growth in major trading partner countries in April helped improve non-oil and gas manufacturing performance in April 2023. This is seen in increased trade activity in several of Indonesia's main partner countries. In addition, controlled inflation in partner countries and declining commodity prices also encouraged industry to keep expanding. The festive season in April also boosted the performance of several non-oil and gas manufacturing subsectors. This is reflected in the April Industrial Confidence Index (IKI), which again showed expansion.
“The Industrial Confidence Index (IKI) for April 2023 reached 51.38, slowing by 0.49 points from March 2023,” Ministry of Industry (Kemenperin) spokesperson Febri Hendri Antoni Arif said at the April 2023 IKI release in Jakarta.
Despite the slowdown, the number of expanding industrial subsectors rose in April 2023 to 15, from only 14 in March 2023, with a share of 80.2% of 2022 non-oil and gas manufacturing GDP. This share is supported by subsectors with large contributions such as the Food Industry; Chemicals and Chemical Products; and Motor Vehicles, Trailers and Semi-Trailers.
All the component variable indexes of IKI in April 2023 were in expansion. However, in more detail, the decline in IKI was due to the Product Inventory variable falling by 2.67 points to 52.33, indicating higher stock levels, and the New Orders variable falling by 0.76 points to 50.57, indicating fewer new orders. On the other hand, the Production variable rose from 50.69 in March 2023 to 52.08 in April 2023. Domestic Orders remain the dominant factor influencing the New Orders variable index.
Febri explained that IKI declined because several subsectors with a large GDP share contracted after previously expanding. Second, the orders variable, the largest component of IKI, declined this April. High household demand during Ramadan and the Eid holiday pushed up manufactured product prices, while spending on production needs and government spending fell significantly. Besides high prices, limited working hours during Ramadan and the holiday also reduced orders. Domestic orders are expected to rise next month as industry resumes normal production. This is a seasonal pattern that need not be a concern.
“Most businesses, 45.2%, said general business conditions in April 2023 were stable, and 28.7% said their business activity improved compared with March 2023,” Febri added.
Likewise, looking at business conditions over the next six months, 64.7% of businesses were more optimistic, up from 63.5% the previous month and the highest since IKI was launched. Most optimistic respondents expressed confidence that market conditions will improve and trust in better central government policies. Meanwhile, 9.9% of businesses remained pessimistic about the next six months, also the lowest since IKI was launched.
By subsector, the Rubber, Rubber Goods and Plastics Industry and the Furniture Industry improved, moving from contraction to expansion this April. The Rubber, Rubber Goods and Plastics Industry showed rising new orders, unlike last month when distributors cut orders to use up available stock. Likewise, the Furniture Industry showed rising orders and production and lower inventory, influenced by preparations for the holiday and rising foreign orders.
Unlike these two subsectors, the Fabricated Metal Products Industry (excluding machinery and equipment) contracted after previously expanding. All its component variables showed fairly deep contraction due to fewer domestic orders. Kemenperin will take steps to increase domestic orders.
The Textile, Apparel, Leather, Leather Goods and Footwear, Wood, and Non-Metallic Mineral Products industries are still contracting. Import surges remain the dominant issue amid weak domestic product competitiveness. In the Textile Industry specifically, rising fabric imports are killing upstream industries such as yarn and fiber. Firmer supervision and control of imports are needed. Kemenperin is still running the machinery restructuring program, and it is hoped the HGBT program can be applied more widely. Last month, exports from the Textile, Apparel, Leather, Leather Goods and Footwear industries increased. An Export Task Force has been formed to keep this rise in overseas sales stable.
Other Manufacturing (Miscellaneous Industries) consists of gemstones, precious metal goods, jewelry, musical instruments, sports equipment, children's toys, medical equipment, eyewear, stationery and other industries, several of which have high export potential. However, since November the Miscellaneous Industries have consistently contracted, due to contraction in the new orders and production variables. New orders contracted because of fewer foreign orders, and production fell as orders declined. Demand fell due to the global recession; one affected industry is false eyelashes, which saw lower demand and raw material constraints, as materials are still imported because domestic suppliers cannot yet meet the required standards. Lower demand in the Stationery Industry was due to the new school year not yet starting. The children's toy industry depends heavily on plastic raw materials and thus on world oil prices, and domestic consumers currently prefer primary consumption such as food over tertiary products. Steps Kemenperin has taken include seeking new markets in cooperation with ITPCs and trade attachés, improving the digital literacy of domestic producers, and capturing the domestic market through the TKDN-IK policy. TKDN-IK is important so small industries can become goods and services suppliers and enter the e-catalog. Kemenperin also facilitates SNI certification for Small Industries and helps improve marketing through exhibitions.
The Director General of Small, Medium and Miscellaneous Industries, Reni Yanita, said Kemenperin is continuing efforts to increase demand for domestic products by campaigning “Love Domestic Products” and increasing TKDN implementation, especially TKDN-IK.
Source: Press Release of the Ministry of Industry of the Republic of Indonesia