Economist: Business Sector Needs Certainty as Manufacturing PMI Falls to 46.9

The business world needs policy certainty and signals of optimism from the government, according to Trimegah Sekuritas Indonesia Chief Economist Fakhrul Fulvian, following the drop in Indonesia’s Manufacturing Purchasing Managers’ Index (PMI) to 46.9 in June 2026, placing it in contraction territory. The S&P Global Indonesia Manufacturing PMI was previously at 50.0 in May 2026. “When the business world faces increasing cost pressures, the government needs to reduce various forms of intervention that add to uncertainty. What is needed now is to restore confidence,” Fakhrul said in a statement in Jakarta on Wednesday. He believes the business sector will reinvest if it sees a clear, consistent policy direction from the government that provides room for the private sector to grow. Fakhrul also assessed that the government needs to immediately prepare stimulus that directly lowers industrial production costs. He stated that when pressure originates from the cost side, the solution is to help businesses reduce their production cost burden so they can maintain production capacity and their workforce. On the other hand, he believes the weakening of public purchasing power must also be addressed promptly. Fakhrul proposed the government provide a 20 percent electricity tariff discount as a stimulus for household consumption. He views that an electricity tariff discount has a relatively fast multiplier effect because it directly reduces household expenditure. Thus, the public’s spending capacity will increase without having to wait for a longer aid distribution process. “Amid rising inflation, a step like this can help maintain domestic consumption, which has been the main pillar of Indonesia’s economic growth,” Fakhrul said. According to him, the current global conditions also demand a more active fiscal role as a buffer for the economy. “Amid increasing global inflationary pressures and a slowdown in manufacturing activity, the state budget must be re-empowered as a shock absorber. The fiscal function is indeed present to maintain economic continuity when the private sector is under pressure,” Fakhrul explained. However, he stressed that this fiscal space must be built through good, targeted, and credible budget reallocation, not through unmeasured spending expansion. Overall, Fakhrul assessed that the decline in Indonesia’s S&P Global Manufacturing PMI to 46.9 in June 2026 is a signal that pressure on the national industrial sector is increasing. The decline shows manufacturing activity has returned to the contraction zone, in line with weakening demand and rising production cost pressures. The PMI figure uses a scale of 0 to 100, where a reading above 50 indicates the sector is growing or expanding, 50 indicates no change, and below 50 indicates the sector is contracting. According to Fakhrul, the S&P Global report shows this contraction was triggered not only by weakening demand but also by a surge in increasingly heavy production costs. In fact, input price inflation was recorded as the second highest in the survey’s history since 2011, driven by rising raw material prices and a weakening exchange rate. At the same time, companies are also starting to reduce raw material purchases, cut their workforce, and scale back production in response to weakening new orders. “This illustrates that the industry is currently facing pressure from two sides simultaneously,” he said. Fakhrul added that on one hand, demand is weakening because consumer purchasing power is depressed. On the other hand, production costs are actually increasing due to global turmoil, especially after rising geopolitical tensions and war drove up various commodity and raw material prices. Nevertheless, the S&P Global report itself still shows optimism among industry players regarding the 12-month outlook if price pressures begin to ease. Fakhrul assessed this indicates that a recovery momentum is still very possible, provided government policy can reduce cost pressures, maintain public purchasing power, and provide certainty on economic policy direction.