The Ministry of Industry (Kemenperin), has taken proactive measures to address the slowdown of the industrial sector. This slowdown is reflected in the Purchasing Managers’ Index (PMI) for May 2023, which recorded a decrease from the previous month’s figure of 52.7 to 50.3.Â
Agus Guniwang Kartasasmita, the Minister of Industry, emphasized the need to support industries during this challenging period and announced a diverse range of incentives that can be tailored to specific needs.
These incentives include tax and energy cost reductions, government-covered entrance fees, and assistance with raw material expenses. Kartasasmita further highlighted that these incentives are primarily directed towards labor-intensive sectors that have been significantly affected by layoff crises, such as the textile industry and Textile and Textile Processing (TPT) sector.
“We aim to provide support to all affected sectors, particularly those that have a substantial workforce, such as the textile industry,” said Kartasasmita, on June 12, 2023.
Effects on foreign companies in Indonesia
With the ongoing slowdown in the industry sector, foreign textile companies such as, PT Horn Ming Indonesia, and PT Tuntex Garment that produces the Puma brand shoes and clothing, had to resort to lay-offs to maintain operational capability.
Horn Ming, located in Tangerang, Banten, had just recently laid-off 600 of its workers or about 12.5% from the total 2,400 workers. These lay-offs occur as a result of slowdown in global economic growth. Meanwhile, Tuntex laid-off about 1,200 of its workers, and as a result went out of business.
“The reason for the lack of orders is because of the sluggish European market after the war [started] between Ukraine and Russia,” said Rudi Hartono, the Head of the Tangerang Regency Manpower Office on June 9, 2023.
Meanwhile, the Indonesian Employers’ Association (APINDO) said that the textile, footwear and furniture industries will carry out a mass employment termination in 2023, due to declining demand.
“There are definitely going to be layoffs next year, not ‘will’ again,” said Shinta Widjaja Kamdani, Deputy Chairperson of APINDO.
Manufacturing PMI decline
Jingyi Pan, Associate Director of Market Intelligence at S&P Global, analyzed the decline in Indonesia’s PMI for May 2023 and attributed it to weakened demand both domestically and internationally.Â
This decrease in demand is expected to impact short-term growth projections. However, Pan emphasized that the manufacturing sector’s slowdown could help alleviate the pressure of rising production costs. As a result, the anticipated increase in consumer prices is expected to be more moderate.
On the other hand, Pan commended the efforts of Bank Indonesia in curbing inflation, noting that the softening of price increases is a direct outcome of these initiatives. Inflation in May 2023 decreased to 4%, in line with Bank Indonesia’s inflation predictions for the year, which range between two and four percent. However, Pan expressed concerns about the overall business sentiment, highlighting a declining level of confidence.
Lowest inflation rate recorded
Data recorded by Statistics Indonesia (BPS) showed that the country experienced a year-on-year inflation rate of 4% in May 2023. The inflation rate has been steadily decreasing since March 2023, reaching its lowest level since the beginning of the year.
In conclusion, the Indonesian Ministry of Industry is actively addressing the industrial slowdown by providing a range of incentives to support affected sectors. The decline in the PMI reflects the challenges faced by the manufacturing industry, influenced by weakened demand both domestically and internationally.
However, concerns remain regarding the overall business sentiment, as confidence levels continue to decline. The recorded low inflation rate in May 2023 indicates the ongoing efforts to maintain stability in the country’s economy.
