Kadin: Indonesia's Manufacturing Performance Vulnerable to External Factors
Indonesia’s Chamber of Commerce and Industry (Kadin) predicts that the Purchasing Managers’ Index (PMI) for Indonesian manufacturing will stay in the expansion zone for the upcoming period. “It has the potential to remain in a thin expansion zone, but it is very vulnerable to external pressures,” said Kadin’s Vice Chairman for Industry, Saleh Husin, in a written statement on Wednesday, 1 April 2026.
This statement was made by Saleh in response to the decline in manufacturing performance in March, primarily caused by reduced demand and production due to conflicts in the Middle East.
Global ratings agency Standard & Poor’s Global Ratings (S&P) reported that Indonesia’s manufacturing PMI fell to 50.1 in March on a monthly basis. The February manufacturing PMI was recorded at 53.8.
Regarding the current manufacturing situation, the former Minister of Industry is confident that the sector’s performance is still expanding, but it is highly vulnerable to external factors. According to Saleh, a weakening in export volumes will directly impact labour-intensive sectors through reduced utilisation, margin pressures, and potential workforce reductions.
Therefore, Indonesia’s manufacturing performance is heavily determined by the recovery of global demand, energy price stability, and the effectiveness of government policies in maintaining industrial competitiveness.
On 1 April 2026, S&P reported that Indonesia’s manufacturing PMI declined in the third month of the year. “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.
S&P reported that the war between the United States and Israel with Iran, which triggered rises in supply and raw material prices, affected 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 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 triggered a decline in capacity pressures since October 2025.
Reduced sales led to an increase in post-production inventories as unsold goods were held as stock. The decline in demand and production triggered workforce reductions. Companies reported carrying out small-scale layoffs at least twice in the past three months.
S&P also highlighted that average delivery lead times were longer for the sixth consecutive month amid Middle East escalation. These delivery delays were the sharpest since October 2021.
On the pricing side, input price inflation increased compared to the previous period and reached the highest level since March 2024. As a result, output costs also rose at the fastest pace since June 2022.
The inflation rate was very strong and reached the highest point in two years, strongly influenced by raw material price increases due to shortages and delivery delays. Companies passed on these input cost burdens to clients by raising factory prices at the maximum rate since 2022.
For the period ahead, Indonesian producers showed optimism about next year’s outlook. 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.