Indonesian Manufacturing Returns to Expansion, but Recovery Lacks Solid Ground

Indonesia's manufacturing sector has returned to expansion, with the Purchasing Managers' Index (PMI) climbing to 50.2 in July 2026, up from 46.9 in the previous month. This marks a recovery after a period of contraction.

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The increase in PMI to 50.2 indicates that manufacturing activity has re-entered the expansion phase after contracting in June. However, because PMI is a short-term indicator, one month's achievement is not enough to conclude that the industry has entered a strong recovery trend.

However, the Indonesian Chamber of Commerce and Industry (Kadin) expressed caution, stating that the recovery is not yet solid and requires further reinforcement. Saleh Husin, Kadin's Deputy Chairman for Industry, emphasized that a single month's improvement is insufficient to confirm a sustainable recovery trend. He noted that sustained growth over several months, along with increased industrial output, production capacity utilization, and investment, are crucial.

While Indonesia's manufacturing performance has improved relative to other ASEAN nations, its expansion rate is still considered moderate. The July PMI increase was driven by higher production and improved domestic demand, leading to more new orders. Nevertheless, challenges persist, including rising raw material costs, weak export demand, and cautious purchasing behavior from businesses.

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This shows that the recovery is not yet widespread and still requires strengthening from the demand side.

Saleh advised against interpreting the July PMI rise as a signal for businesses to aggressively pursue new investments or expand production capacity. He suggested that businesses will likely monitor demand trends for several more months before committing to expansion. Economic observer Ibrahim Assuaibi echoed this sentiment, viewing the PMI increase as a positive sign but acknowledging that market caution remains due to global economic risks and anticipation of second-quarter GDP data.

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Businesses are expected to continue monitoring the sustainability of demand trends in the coming months before undertaking capacity expansion or new investments.