Economist: Indonesian Manufacturing PMI Enters 'Danger Zone' Amid Long-Standing Industrial Woes

Indonesia's manufacturing sector is signaling distress as its Purchasing Managers' Index (PMI) dropped below the crucial 50-point mark in June 2026. This contraction indicates a slowdown in manufacturing activity, a sector vital for economic growth and job creation.

Senior Economist Didik J. Rachbini from the Institute for Development of Economics and Finance (Indef) described the situation as the industry entering a "red danger zone." He attributed the decline not only to global geopolitical dynamics but also to persistent domestic challenges. These include high production costs, complex bureaucracy, and a lack of incentives to stimulate manufacturing investment.

Rachbini criticized the government's policy approach, stating that the industrial sector has been adrift without clear policy direction. He warned that businesses will struggle to expand without policy certainty that supports investment. The weakening consumer purchasing power is also linked to the industrial slowdown, creating a "vicious cycle" where reduced industrial activity leads to fewer jobs, lower consumption, and decreased demand for manufactured goods.

Comparing Indonesia's situation to Vietnam's success in becoming an upper-middle-income country, Rachbini highlighted Vietnam's consistent, decades-long focus on developing its industrial sector with pro-investment policies and a focus on export-oriented industries. He suggested that Indonesia's industrial woes stem from an absence of such strategic, long-term policy support.