"The second covid-19 wave hit Indonesia’s manufacturing sector hard and fast in July, according to the latest IHS Markit PMI survey, sinking both output and new order indices deep into contraction territory," said IHS Markit Economics Associate Director Jingyi Pan in a press release on Monday.
July’s reading signalled the first contraction for Indonesia’s manufacturing sector in nine months, with the rate of decline the fastest since June 2020.
Manufacturing output and new orders both shrank at the fastest pace since May 2020 according to the latest data, thereby ending an eight-month growth streak.
Panellists highlighted the increase in disruptions arising from the second covid-19 wave having dampened production and demand.
Export orders were also affected and fell for the first time in four months and at a rate quicker than the drop in overall new work.
Amid the uncertainties brought about by the second covid-19 wave, Indonesian manufacturers switched to lowering their employment levels in July.
Anecdotal evidence from panellists suggested that the layoffs took place due to the implementation of PPKM Level 4 restrictions, although many of these were expected to be temporary.
Nevertheless, Indonesian manufacturers were more positive about the outlook for production in the next 12 months in July compared to June.
Panellists hoped for the covid-19 situation to improve, which is expected to unleash some pent-up demand.
"Overall, manufacturers remained positive with regards to future output despite the severe covid-19 disruptions, carrying hopes for recovery and the possibility of a boost from pent-up demand," the IHS Markit economist stated.