ASIATODAY.ID, JAKARTA – In the midst of efforts to recover the global economy, the world’s two largest economies, Japan and the UK, have entered a wave of recession. Apart from that, geopolitical developments such as tensions in the Red Sea as a result of the Middle East conflict are still hampering the movement of goods.
The holding of general elections in 2024 in several of Indonesia’s main partner countries, such as the United States (US), European Union, India and Taiwan, will also influence their business behavior to Indonesia.
In this unstable global situation, the Indonesian economy is still growing and appears to be under control, including the manufacturing industrial sector.
The average growth of gross domestic product for the Indonesian manufacturing industry reached 3.44 percent (2014-2022), higher than world growth and OECD (world bank data), with a contribution reaching 19.9 percent. Indonesia’s Manufacturing Value Added value in 2021, which reached $288 billion (UNStats data), shows that Indonesia is one of the world’s manufacturing power houses.
Exports of non-oil and gas industrial products account for 72.24 percent of Indonesia’s exports (in 2023). Labor absorption of up to 19.29 million people (up 23.5 percent compared to 2014), and investment in the industrial sector which reached IDR 3,031.85 trillion over a decade shows that the manufacturing industry remains strong in facing the current global recession.
Meanwhile, the manufacturing Purchasing Manager’s Index (PMI) shows that for 29 consecutive months Indonesia experienced expansion. The Industrial Confidence Index also showed the same thing from its release in November 2022 to February 2024.
“The Industrial Confidence Index (IKI) for February 2024 reached 52.56, an increase of 0.21 points compared to January 2024,” said Spokesperson for the Indonesian Ministry of Industry, Febri Hendri Antoni Arif, in Jakarta, quoted on Saturday, March 2 2024.
Febri explained that the increase in IKI in February was influenced by an increase in IKI values in 15 subsectors. Apart from that, the 2024 elections that have taken place are also a factor that has made business actors’ expectations of the domestic economy more optimistic. Seasonal factors in the upcoming month of Ramadan and Idul Fitri also support increased optimism among industry players, especially in the food and beverage, apparel and motor vehicle industry subsectors.
“So we predict that the IKI in March 2024 will increase compared to February 2024,” he added.
The general condition of business activities in February 2024 was better than in January 2024. This can be seen from the percentage of respondents who answered that their business conditions had improved, rising from 30.1% to 31.7%, or respondents who answered that they had improved and were stable, rising from 76.4 % to 76.8%.
Likewise, business actors’ optimism for the next 6 (six) months is also very good, rising again from 67.6% in January 2024 to 71.0% in February. The level of pessimism also fell, from 10.6% in the previous month to only 7.9%. This value shows the best perception since IKI was released.
The number of industrial subsectors experiencing expansion has become 15 subsectors with a contribution to GDP in the fourth quarter – 2023 of 87.91%. The largest IKI value or largest expansion is still experienced by the beverage industry, followed by the leather industry, leather goods and footwear subsectors, the food industry, the non-metallic mineral goods industry, and the pharmaceutical, chemical and traditional medicine industries.
If we look at the variables forming the IKI, the increase in the IKI value comes from an increase in the product inventory variables (3.48 points) and new orders (0.97 points). The production variable decreased to 50.45 (down 3.23 points), although it was still at the expansion level. This condition illustrates that the non-oil and gas processing industry in February still used up the production of the previous period.
Furthermore, Febri explained that several subsectors experienced a significant decline in production, namely the leather industry, leather goods and footwear subsectors; beverage industry; tobacco processing industry; rubber industry, rubber and plastic goods; food industry; non-machined metal goods industry; apparel industry; motor vehicle industry, trailers; pharmaceutical industry, chemical and traditional medicine, and so on.
“This decrease in production activity has resulted in a decrease in the number of industrial workers,” explained Febri.
In general, the dominant factors that cause business actors to reduce production are a decrease in orders, level of product availability, availability of raw/auxiliary materials, and seasonal factors. The crisis in the Red Sea that was mentioned earlier caused an increase in logistics costs and product delivery times for several subsectors, such as in the wood industry and wooden goods.
In terms of availability of raw materials, geopolitical tensions hamper shipments while the El Nino drought causes raw material shortages. The Russo-Ukrainian War caused a shortage of potassium as a raw material for NPK fertilizer which was imported from Russia as the main partner. In addition, the large number of holidays in February is thought to reduce production time in most subsectors, resulting in contraction.
The largest decline in the IKI value was experienced by the other transportation equipment industry, amounting to 5.15 points, which changed the expansion level to contraction. Several dominant factors caused the IKI value of this subsector to decline, namely a decrease in domestic and foreign orders, still a lot of product inventory, availability of raw materials, and seasonal factors.
Six subsectors experienced contraction in IKI values in sequence from the lowest, namely the computer industry, electronic and optical goods, electrical equipment industry, textile industry, other processing industries, wood industry, wooden and cork goods, and other transportation equipment industries. (AT Network)
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