Indonesian Manufacturing PMI Rebounds to Expansion Territory

Indonesia's manufacturing sector showed signs of recovery in May 2026, moving back into expansion territory with its Purchasing Managers' Index (PMI) reaching 50.0, up from 49.1 in April, according to Standard & Poor’s Global Ratings. This rebound signals a stabilization of business conditions after a contraction in the preceding month.

Despite the overall improvement, manufacturers continued to grapple with significant challenges. Rising raw material costs and shortages of essential production inputs constrained output, leading to a third consecutive month of factory contraction, albeit at a slower pace. Employment levels also saw a marginal decrease as companies adjusted production volumes.

Demand dynamics presented a mixed picture. New orders saw their strongest growth since February, primarily driven by robust domestic demand. However, export performance deteriorated considerably, marking the third consecutive month of decline and the sharpest drop since August 2021. Survey respondents attributed this slump in international sales to the ongoing conflict in the Middle East and rising global prices impacting demand.

Inflationary pressures intensified, with input cost inflation accelerating to its highest level since September 2013, largely due to escalating raw material prices. Manufacturers passed some of these increased costs onto consumers, resulting in the sharpest rise in selling prices since October 2013. Supply chain conditions remained strained, with supplier delivery times lengthening for the eighth consecutive month, reflecting geopolitical tensions. Nevertheless, business confidence strengthened, with firms anticipating production growth in the coming year, though overall sentiment remains below historical averages.

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Indonesia’s manufacturing economy remained under pressure in May, as production was constrained by higher raw material prices and limited input availability.