Indonesia's Manufacturing PMI Falls to Weakest Level in 8 Months, Hit by War
Jakarta, CNBC Indonesia - Indonesia’s manufacturing activity is beginning to be impacted by the Iran war.
Data from the Purchasing Managers’ Index (PMI) released by S&P Global today, Wednesday (1/4/2026), shows Indonesia’s PMI at 50.1 in March 2026. This figure is the lowest since July 2025, or the last eight months.
Although slowing, Indonesia’s PMI remains in the expansionary phase for eight consecutive months.
The PMI uses 50 as the starting point. If above 50, it means the business world is in an expansion phase. Meanwhile, below that indicates contraction.
The PMI plummeted due to declines in both production volume and new orders throughout March.
March data shows a renewed decline in production levels after four consecutive months of growth and a significant surge in February.
The rate of decline was relatively moderate but the deepest since June 2025.
Business reports state that the war in the Middle East is affecting raw material prices and supplies, which then disrupts demand and manufacturing production.
Additionally, subdued conditions have also caused slowdowns in purchasing activity, work backlogs, and employment. Business confidence has increased slightly but remains below the long-term average.
On the pricing side, input cost inflation rose compared to the previous survey period and reached the highest level since March 2024. As a result, product selling prices were raised at the fastest pace since June 2022.
“The production decline is the deepest in the last nine months. The demand slowdown is also caused by a sharp reversal in new export orders, which fell at the deepest rate since last November,” said Usamah Bhatti, Economist at S&P Global Market Intelligence, quoted from the official website.
Based on panel reports, the main factor behind the weakening in March was the outbreak of war in the Middle East.
“Evidence shows that the war has put significant pressure on raw material prices and supplies, burdening production and demand, while pushing cost inflation to the highest level in two years,” added Usamah.
In addition, weakening production and capacity needs have driven companies into efficiency mode by reducing purchasing activity and workforce numbers.
“Manufacturing players remain optimistic that output will increase throughout the year. However, March data highlights the vulnerability of Indonesia’s manufacturing sector to war, especially in terms of prices and supplies,” he added.
Data also shows that, simultaneously, the volume of new orders also slowed for the first time in eight months in March.
The decline was slight but marked a significant change from the strong expansion in the previous period. Producers cite weak demand and increasing competition as the main factors pressuring new orders. Export orders also fell after rising in February.
Weakening demand has also reduced capacity pressures and allowed companies to complete pending work. Work backlogs fell for the first time since October. Meanwhile, declining sales have led to an increase in post-production inventories as unsold goods pile up in warehouses.
In line with production and demand trends, companies have again reduced their workforce numbers for the second time in the last three months, although only slightly.
Lead times for raw material deliveries have continued to lengthen for six consecutive months, due to material shortages and delivery delays following the outbreak of war in the Middle East. This delay rate is the worst since October 2021.
Companies are attempting to increase raw material stocks to anticipate delays and price increases, but this effort is hampered by the same issues. As a result, the pace of stock additions has become the weakest in the last six months.
Indonesian producers also reported rises in input prices in the latest survey period, with significant inflation rates that are the highest in the last two years. This is mainly linked to rising raw material prices amid shortages and delivery delays.
Companies then sought to pass on these cost increases to consumers by raising product selling prices at the fastest rate since June 2022.
Looking ahead, Indonesia’s manufacturing industry players continue to show optimism about prospects over the next year. Confidence levels are fairly strong and slightly up from February.
This optimism is driven by expectations that demand will recover and the Middle East conflict will not worsen. However, that confidence level is still below the historical average.