The economic slowdown in China, Indonesia's main trading partner, continued to overshadow non-oil and gas processing industry performance through the end of 2023. Despite fairly high economic growth in Q3-2023, China's imports from several countries, including Indonesia, eased in November. Non-oil and gas industrial exports to China fell 6.44% from the previous month. Even so, the Consumer Confidence Index (IKK-BI) still showed good optimism at the end of 2023, as did December's Industrial Confidence Index.
“The Industrial Confidence Index (IKI) for December 2023 reached 51.32. Although down 1.11 points from November 2023, IKI is still in expansion. It is also up 0.42 points from 50.90 in December last year,” Ministry of Industry (Kemenperin) spokesperson Febri Hendri Antoni Arief said at the December 2023 IKI release in Bali on Thursday (28/12).
Febri explained the slowdown was influenced by lower IKI values in 17 non-oil and gas processing subsectors. All IKI variables fell: new orders fell 1.41 points to 53.44, production fell 0.64 points to 53.86, and product inventory, still in contraction, fell 1.08 points to 42.21. This shows a rising trend in product inventories across almost all processing subsectors. Of 23 non-oil and gas processing subsectors, only two saw their inventory variable in expansion as stock was channeled to the market.
Fewer effective working days due to Christmas and New Year reduced non-oil and gas processing industry productivity in December 2023. Global markets have also not yet recovered and stabilized, slowing demand (orders) from abroad. China's economy weakened again, as seen in consumer (CPI) and producer (PPI) deflation, rising real interest rates and falling Chinese imports. Indonesia's own business climate at year-end was marked by lower export commodity prices and higher energy prices. As a result, companies that prepared products for year-end could not sell them to the market optimally, leading to stock buildup.
The largest IKI decline was in the computer, electronic and optical products industry, which is also the subsector with the deepest contraction, or lowest IKI. This subsector has seen increasing contraction since October 2023. Other industries needing attention are textiles and other processing industries. The dominant factors behind the lower IKI are markets that have not recovered, especially overseas, price competitiveness against imports, availability of raw/auxiliary materials and delivery lead times.
In more detail, Febri explained that IKI's expansion was driven by 15 subsectors in expansion, accounting for 86.3% of GDP in Q3-2023. Of these 15, five saw higher IKI values: tobacco processing, apparel, electrical equipment, machinery/equipment repair and installation, and beverages. Two of these moved from contraction to expansion from the previous month: electrical equipment and machinery/equipment repair and installation services.
Febri explained that overall industrial business conditions in December 2023 held steady from November 2023, as seen from the rising percentage of respondents saying their business conditions improved or stayed the same, at 78.6%.
Business optimism for the next six months rose from 61.41% to 62.39%. Dominant factors include market conditions, central and regional government policies, licensing processes and inflation. Almost all subsectors have high expectations or optimism for their business conditions in H1-2024. The non-metallic mineral products industry has the lowest optimism at 42.69% and high pessimism at 21.37%, believed to be due to oversupply in Indonesia, even as new investment in the subsector keeps coming in. Low optimism is also expected in wood, wood products and cork (49.29%), while the highest and high pessimism are in apparel (23.18%) and textiles (20.14%).
Looking ahead, the Ministry of Industry continues to coordinate with relevant Ministries/Agencies on a cement industry moratorium and to penetrate non-traditional markets through business matching and international cooperation. Data show non-oil and gas exports to the United Arab Emirates (UAE) rose 2.73% (mtm), believed to be due to the implementation of the IUAE–CEPA on 1 September 2023. Indonesian non-oil and gas exports to the UAE that rose in November 2023 include animal/vegetable fats and oils (HS 15), electrical machinery and equipment and parts (HS 85), paper, paperboard and articles thereof (HS 48), and vehicles and parts (HS 87).
Source: Press Release of the Ministry of Industry of the Republic of Indonesia