Indonesia's Manufacturing Performance Declines Due to Iran War
The global ratings agency, Standard & Poor’s Global Ratings (S&P), reports that Indonesia’s manufacturing Purchasing Managers’ Index (PMI) declined to 50.1 in March on a monthly basis, down from 53.8 in February.
“According to panel members’ reports, one of the main factors behind the decline at the end of the first quarter was the outbreak of war in the Middle East,” said S&P Global Market Intelligence researcher Usamah Bhatti in a written statement on Wednesday, 1 April 2026.
S&P reports that the war between the United States and Israel with Iran, which has triggered rises in supply and raw material prices, has impacted the decline in demand and production in the manufacturing sector.
The production level decline in March occurred after four months of growth and the largest increase in February. Panellists assessed this decline as the sharpest since June 2025.
Panellists viewed the production decline as reflecting shortages of raw material supplies and rises in material prices, mainly influenced by the Middle East escalation and global economic turbulence.
At the same time, S&P noted a decline in new order volumes for the first time after eight months. Although occurring on a marginal scale, this decline represents a significant shift from the substantial expansion in the previous survey period.
Respondents stated that the demand decline reduced capacity pressures, allowing companies to complete existing work. This condition has triggered a decline in capacity pressures since October 2025.
Reduced sales have led to an increase in post-production inventories as unsold goods are held in stock.
The decline in demand and production has triggered workforce reductions. Companies reported carrying out small-scale layoffs at least twice in the past three months.
S&P also highlighted that the average lead time for goods deliveries has been longer for six consecutive months amid the Middle East escalation. These delivery delays are the sharpest since October 2021.
On the pricing side, input price inflation has increased compared to the previous period and reached the highest level since March 2024. As a result, output costs have also been pulled up at the fastest rate since June 2022.
The inflation rate is very strong and has reached the highest point in two years, strongly influenced by rises in raw materials due to shortages and delivery delays. Companies have passed on these input cost burdens to clients by raising factory prices at the maximum rate since 2022.
For the outlook ahead, Indonesian producers are showing optimism towards expectations for the coming year.
The optimism level in March rose compared to the previous month, supported by hopes of improved demand and no further escalation in the Middle East. However, the sentiment level remains below average.