Alarm for the Manufacturing Sector

Indonesia’s manufacturing sector is at a crossroads. The decline in Indonesia’s Purchasing Managers’ Index (PMI) to 46.9 in June 2026 is not merely a monthly statistic. This sharpest contraction in a year signals that the manufacturing sector, which has long been the engine of economic growth and the largest absorber of labour, is facing serious problems. It is easy to blame global economic turmoil. However, by continuously sheltering behind external factors, we ignore the unresolved structural issues at home. The sluggishness of Indonesian manufacturing increasingly points to these domestic problems. As highlighted by business groups, the main problem is the high cost of doing business. The industry is still burdened by expensive logistics costs, energy prices that are not yet fully competitive, high lending rates, and various levies and frequently changing regulations. The second issue is the flood of cheap imported products. Many labour-intensive industries, from textiles and footwear to electronics, are losing their domestic market share. Competition is normal, but when unfair trade practices are allowed to drag on, the national industry will be further squeezed. Third, the investment climate lacks certainty. The business world needs more than just incentives; it requires policy consistency. Frequent regulatory changes cause industry players to delay expansion because they cannot calculate long-term business risks. Therefore, the government cannot simply respond to the weakening PMI with temporary stimulus. What is needed is a comprehensive overhaul of industrial competitiveness. Regulatory certainty must be a priority, alongside accelerating the reduction of logistics costs through port and distribution efficiency. The Specific Natural Gas Price (HGBT) programme, along with supply consistency, needs to be expanded so that industries can obtain energy supplies at competitive and sustainable prices. Investment incentives also need to be more targeted, especially towards labour-intensive industries. Support in the form of tax incentives, financing for machinery investment, and workforce training will have a far greater impact than generic policies. A PMI in the contraction zone should not be seen as just a cycle. If left unchecked, the weakening of manufacturing will suppress investment, reduce job creation, and ultimately stifle economic growth.