Indonesia Hit by Two Major Economic Shocks: Manufacturing Slump and Trade Deficit
Indonesia received two pieces of bad news on Wednesday (1/7/2026), as the Purchasing Managers’ Index (PMI) slumped to 46.9 and the trade balance recorded a deficit after 72 consecutive months of surplus. These developments risk affecting the Indonesian economy going forward.
Data released by S&P Global today showed the PMI at 46.9 in June 2026, the sharpest rate of decline in a year. A renewed fall in new orders led to the largest drop in output volumes since April 2025. S&P noted the PMI indicates a further deterioration in the health of the goods-producing sector, with supporting data showing a solid decline in factory operating conditions, one of the steepest in a year.
Usamah Bhatti, Economist at S&P Global Market Intelligence, said the health of Indonesia’s manufacturing sector deteriorated for the second time in three months, closing the first half of 2026. S&P assessed that the negative demand trend prompted firms to cut output for a fourth consecutive month, the sharpest since April 2025. “In response to these conditions, firms scaled back their workforce numbers and purchasing activity markedly, while inventories also declined amid weakening demand conditions,” Bhatti said in the report.
S&P highlighted that goods producers reduced their workforce numbers further in June. The rate of layoffs was solid and the most pronounced since September 2021. Meanwhile, purchasing of inputs fell for a fourth straight month and at the fastest pace since August 2021. Some firms noted that rising raw material prices also hampered purchasing activity.
According to Bhatti, price pressures remained historically elevated as producers registered a rise in average cost burdens amid reports of higher raw material prices. He added that the current rate of inflation was the second-highest on record and drove the sharpest increase in factory gate charges in nearly 13 years.
Unwelcome news also came from Indonesia’s trade data. The Central Statistics Agency (BPS) recorded a goods trade deficit of US$1.61 billion in May 2026, ending a 72-month run of consecutive surpluses. According to BPS, exports in May were valued at US$23.20 billion, while imports reached US$24.81 billion. Imports growing faster than exports caused the trade balance to swing into deficit.
BPS Deputy for Distribution and Services Statistics Ateng Hartono said the trade deficit in May mainly stemmed from oil and gas commodities. However, the non-oil and gas trade balance still recorded a surplus of US$2.50 billion, supported primarily by exports of mineral fuels, animal or vegetable fats and oils, and iron and steel.
Despite the deficit in May, Indonesia’s cumulative trade balance remains in surplus. BPS data shows that for January to May 2026, the goods trade balance recorded a surplus of US$4.03 billion. This was underpinned by a non-oil and gas trade surplus of US$16.31 billion, while the oil and gas trade balance recorded a deficit of US$12.28 billion.
From the release of these two data sets, it can be concluded that the influence of global pressures, particularly from the war in the Middle East, has seeped into the Indonesian economy. It is worth noting that these two economic indicators will serve as benchmarks for Indonesia’s economic growth in the second quarter of 2026. The release of GDP data for the second quarter is scheduled for 5 August 2026. Amid the current global turmoil, the government remains confident that the economy grew in the range of 5.1 to 5.5 per cent in the second quarter.