Preparations for Christmas and the year-end holidays drove the processing industry to “rebound” in November 2023. This was seen in rises in the Economic Condition Index (IKE) and the Consumer Expectation Index (IEK), especially the Job Availability Index issued by Bank Indonesia.
Year-end order fulfillment is also believed to have boosted job availability. This is reflected in the rise in the Consumer Confidence Index (IKK) to 124.3 in October 2023 compared with September 2023. In line with this, easing inflation in several major partner countries and a stronger rupiah were positive sentiments for the non-oil and gas processing industry in November.
Meanwhile, the Industrial Confidence Index (IKI) released by the Ministry of Industry for November 2023 stood at 52.43, up 1.73 points from October 2023. The rise was supported by three main factors: higher production and demand, a stronger rupiah, and seasonal year-end preparations (Christmas and New Year). “The rise in IKI was driven by higher IKI values in 15 subsectors, 13 of which rebounded after previously slowing or contracting,” Ministry of Industry spokesperson Febri Hendri Antoni Arief said at the November 2023 IKI release in Jakarta on Thursday (30/11).
However, according to Febri, the November 2023 IKI could have been higher if the Certain Natural Gas Price (HGBT) program had worked well. Import controls and law enforcement against illegal imports also need to be effective. “Stronger coordination and synergy across Ministries and Agencies are therefore needed as follow-up,” he added.
In November's IKI, the largest increase was in machinery and equipment n.e.c. (+9.37), which previously had the largest decline (-10.26). The twelve subsectors that rebounded were tobacco processing; apparel; fabricated metal products except machinery and equipment; leather, leather goods and footwear; paper and paper products; printing and reproduction of recorded media; other processing industries; pharmaceuticals, chemical and traditional medicines; motor vehicles, trailers and semi-trailers; rubber, rubber goods and plastics; and basic metals.
Meanwhile, two other sectors saw IKI increases for two consecutive months: beverages and furniture. The furniture IKI rise was driven by demand in a new market, the Middle East, and ongoing promotion at home and abroad.
The IKI increase was also due to 6 (six) subsectors moving into expansion, bringing the number of expanding subsectors to 17 (seventeen), accounting for 91.1% of Q3-2023 GDP. Of these 17, 6 (six) moved from contraction to expansion, accounting for 17.94% of Q3-2023 GDP, while 3 (three) moved from expansion to contraction, accounting for 5.04% of Q3-2023 GDP.
Looking at the IKI component variables, new orders (+3.13) and production (+3.67) rose to 54.85 and 54.50. The product inventory variable is still in contraction and fell 4.66 points to 43.29, meaning product stocks in the processing industry increased. “Although inventory contraction deepened, this does not indicate poor business conditions, because new orders and production are expanding further,” Febri added.
The Kemenperin spokesperson explained that general business conditions in November 2023 were better than in October 2023, as seen from the rise in respondents saying their business improved or was stable, from 75.6% to 78.8%. Business optimism for the next six months also rose from 61.02% to 61.41%. This shows industry is preparing products to fulfill orders in anticipation of rising orders and lower productivity during the Christmas and New Year holidays.
In November's IKI, 6 (six) subsectors still had IKI values in contraction, 2 (two) of which deepened. The lowest contraction was in the textile industry and the computer, electronic and optical products industry.
By subsector, the food industry IKI is still in expansion although its value fell. In addition, food security issues resulting from El Niño and climate change need to be watched. In the textile industry, the deepening contraction is the result of still-uncontrolled illegal textile imports.
For the computer, electronic and optical products industry, large stocks have led companies to cut production. Similarly, the electrical equipment industry contracted because government spending has ended, although orders are still rising. Implementing the Commodity Balance and Import Trade Rules is expected to help contracting sectors improve.
Industrial Conditions at the End of 2023 and Start of 2024
On a separate occasion, Minister of Industry Agus Gumiwang Kartasasmita warned that although business conditions in November 2023 were better than the previous month, industry still needs to be wary of conditions at year-end and early next year, which are still overshadowed by global instability.
External factors such as a possible recession in Germany, the pillar of the European Union economy, and the United Kingdom need to be watched. Meanwhile, China, expected to grow positively, is still overshadowed by a property crisis. Likewise in the United States, although inflation has eased, rising unemployment clouds the economic outlook.
Source: Press Release of the Ministry of Industry of the Republic of Indonesia