Indonesia Daily Focus December 2, 2020

 

Macro Update – November’s manufacturing PMI: First expansion in 3 months

November’s figure arrives at 50.6

IHS Markit announced Indonesia’s manufacturing PMI figure for the month of November at 50.6, improving from October’s figure of 47.8 as well as marking the first expansion in 3 months. Although manufacturing activities finally scored the above-50 level, we remain cautious; as manufacturing PMI figure denotes a month-on-month change, the expansion in November was thus heavily driven by a low-base effect.

Record rise in production

Following the loosening of tighter large-scale social restrictions (Pembatasan Sosial Berskala Besar/PSBB) in Jakarta in mid-October, firms ramped up production in November, with output increasing at the fastest rate since the survey began over 9.5 years ago, IHS Markit noted.

On the other side, a survey from IHS Markit reveals two key downside risks to Indonesia’s economy going forward. First, with tepid sales growth, the survey indicates a surplus of operating capacity, which eventually dampenes hiring; note that employment has shrunk for 9 straight months.

Second, firms decided to continue reducing purchasing activities and inventories. Purchases of raw materials fell for the 9 consecutive month, while their inventories of raw materials were dragged down again, extending the current trend of depletion to 11 months. Meanwhile, final goods inventories shrank for the 5 consecutive month.

Expecting a contraction in December

Entering December, we foresee our manufacturing activities to slip back to contraction, below the 50 territory, despite the presence of the low-base effect. The expectation on increased demand for goods and services in December due to longer-than-usual holidays might not materialize after all, as the government are widely expected to shorten the holidays in order to minimize the spread of COVID-19.