Indonesia’s manufacturing sector remained in contraction territory in May 2025, despite a modest improvement in activity, with rating agency S&P Global revealing the country’s Manufacturing Purchasing Managers’ Index (PMI) rose slightly to 47.4, up from 46.7 in April, − a signal of ongoing economic pressure in the sector.

Usamah Bhatti, economist at S&P Global Market Intelligence, said that the manufacturing economy contracted at a moderate pace in May.

“This marks the sharpest drop in new orders in nearly four years, which has led to a solid reduction in production volumes,” he said on Monday, June 2, 2025.

Survey data showed that new orders fell significantly, marking the second consecutive monthly decline and the steepest since August 2021. Many manufacturers linked this decline to stagnant market conditions and subdued demand. International demand also weakened, although at a slower rate, with exporters particularly noting lower orders from the United States.

The drop in orders prompted a continued decline in output, which fell solidly for the second straight month, albeit at a slightly slower pace than in April. In response, companies scaled back input purchases and reduced both pre- and post-production inventories, relying on stockpiles to fulfill limited incoming orders.

Even as input demand declined, average delivery times were extended for the ninth consecutive month, primarily due to poor weather conditions and shipment delays.

Despite the ongoing slowdown, Usamah noted a glimmer of optimism: “Firms increased staffing levels for the fifth time in six months to prepare for a potential recovery in demand.” Business confidence for the next 12 months also strengthened.

Additionally, new capacity helped reduce backlogs, although the rate of decline in unfinished work eased compared to April.

On the pricing front, input cost inflation surged, marking the first increase in three months. Rising raw material prices contributed to higher production costs. However, most businesses absorbed these costs internally and even offered discounts in an effort to stimulate demand. As a result, output price inflation remained subdued, recording the lowest increase in eight months of expansion.

While the sector remains under pressure, the cautious optimism shown by firms − reflected in hiring efforts and improved sentiment − suggests hopes of a rebound are still alive in the months ahead.