Manufacturing: Demand Gains Further Momentum

Indonesia’s manufacturing sector extended its recovery in Oct-26, with the PMI rising to 54.0 from 52.4 in Sep-26, marking the strongest improvement in operating conditions since March 2024. The upturn was driven primarily by robust demand, with new orders expanding at the fastest pace since October 2021 and export sales recording their strongest growth since the survey began in April 2011, supported by improving customer confidence.

Meanwhile, supply-chain conditions improved markedly as delivery times shortened for the first time in more than a year. While input cost inflation accelerated due to higher fuel and raw material prices as well as exchange-rate pressures, manufacturers remained confident about the year ahead, supported by expectations of sustained demand growth, business expansion, and easing supply constraints.

Trade Balance: Export Strength Keeps Surplus Elevated

Indonesia’s trade balance remained firmly in surplus at USD3.36bn in Sep-26, significantly exceeding market expectations of USD1.82bn, although slightly below August’s USD3.55bn surplus. The solid outturn was supported by stronger export performance, with exports rising 11.87% YoY to USD27.59bn, driven by higher shipments of palm oil products, copper, as well as continued strength in downstream manufacturing exports. While a USD2.31bn oil and gas deficit continued to weigh on the external balance, the impact was more than offset by a widening non-oil surplus of USD5.67bn.

Otherwise, imports remained relatively resilient, supported by continued purchases of raw materials, capital goods, and energy products. In our view, the sustained trade surplus reinforces Indonesia’s external resilience and provides ongoing support for the rupiah, although the external outlook remains closely tied to commodity export performance and energy import dynamics, given the country’s continued dependence on imported fuel and oil-related products.

Inflation: Food Pressures Remain Elevated Despite Moderation

Indonesia’s inflation moderated slightly in Oct-26, with headline inflation easing to 0.22% MoM and 3.23% YoY, below market expectations and down from 3.28% YoY in Sep-26. The moderation was mainly driven by softer price increases across several categories, although food inflation remained the dominant source of upward pressure, led by higher prices of red chili, bird’s eye chili, rice, fish, and cooking oil. Meanwhile, core inflation stayed relatively contained and administered price inflation remained subdued despite modest increases in fuel and airfare-related costs.

The latest data suggest that inflation pressures continue to be concentrated in food commodities rather than becoming broad-based across the economy. While headline inflation remains within Bank Indonesia’s 2.5%±1% target range, persistent food-related pressures, rising rice prices, and ongoing weather-related supply risks could keep inflation near the upper end of the target range, supporting a cautious policy stance going forward.

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22 February 2024 - 10.06am

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