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.
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