Indonesia's Manufacturing PMI Contracts Due to Iran War
Global rating agency Standard & Poor’s Global Ratings (S&P) reported that Indonesia’s manufacturing Purchasing Managers’ Index (PMI) dropped to 49.1 in April on a monthly basis. The manufacturing PMI was recorded at 50.1 in March.
“Indonesia’s manufacturing sector is beginning to feel the intensifying inflationary pressures amid the Middle East war,” said S&P Global Market Intelligence researcher Usamah Bhatti in a written statement on Monday, 4 May 2026.
S&P assessed that the production decline in the early second quarter of this year was caused by rising prices, shortages of raw material supplies, and weakening purchasing power due to the Middle East war.
The production decline marks the second consecutive month in two months. S&P noted that the rate of production decline increased from March and has been accelerating since May last year.
Meanwhile, the rise in cost burdens, which factored into the manufacturing production decline in April, became the largest since 2022, driving the biggest price increase in 12.5 years.
S&P recorded input cost inflation reaching the highest level in four years. Companies responded to the rise in input costs by sharply increasing selling prices, the steepest since October 2013.
Manufacturers also slightly reduced purchasing activity in response to the decline in output needs. Delays in deliveries and supply shortages led companies to use existing pre-production inventories to support production.
At the same time, finished goods stocks rose as companies held unsold goods as inventory.
Companies reported delivery delays and raw material shortages due to the war, which burdened supplier performance during April. As a result, lead times from suppliers extended for the seventh consecutive month.
In response to the production decline, companies reduced employment levels in April.
The layoff rate was moderate but the highest in the last ten months. At the same time, companies recorded a further decline in backlogs of unfinished work.
In the same month, S&P noted a small increase in new orders, although generally related to early orders to avoid price increases and supply disruptions. The improvement was supported by the domestic market, as new export orders declined.
The S&P survey indicated that Indonesia’s manufacturing sector remains optimistic about a rise in production volume over the next 12 months. However, that confidence level fell to the lowest in the last five months.
The optimism is driven by the launch of new products and hopes for the end of the Middle East conflict, despite concerns that the war may continue.