The country's manufacturing sector grew by an estimated 3.85 percent to 4 percent in the third quarter of this year.
The figure in the July-September period was lower than the 4.43 percent growth recorded in the second quarter. Business associations say this was the result of higher production costs and the impact of the global economic slowdown.
While the global slowdown is hampering demand, the situation at home was also not helpful, with the central bank increasing its key interest rates, said the Indonesian Employers Association (API) chairman Sofjan Wanandi.
"The rate increase is counterproductive and will cause fewer loans to be channeled to the real sector," Sofjan said Wednesday, referring to the central bank's latest rate rise from 9 percent to 9.25 percent.
As a result, it was unlikely that the country could realize its economic growth target of over 6 percent by the end of the year, he said.
According to Bambang Soestyo, head of the fiscal and monetary committee at the Indonesian Chambers of Commerce (Kadin), undisbursed loans to the real sector stood at Rp 208 trillion (US$21.96 billion) as of the end of July and are estimated to hit Rp 270 trillion by the year-end.
These undisbursed loans usually refer to loans already approved by the bank, but not yet disbursed and not yet picked up by the lenders.
"Our energy and monetary policies pose negative effects to our manufacturing sector. These are classic problems that may bring down manufacturing sector growth until the end of 2008," he said.
Dedi Mulyadi, head of the industrial research and development agency at the industry ministry, confirmed that the manufacturing sector was taking a dip.
He said a number of labor-intensive industries -- textiles, footwear, food, beverages, tobacco, fertilizer, chemical, rubber-made product industries and the cement and non-metal mineral industries -- would be the most affected by the weakening global economy.
Indonesian Textile Association (API) chairman Benny Soetrisno said the textile industry would likely drop in its growth rate by 1 percent in the third quarter this year.
"We'll hardly realize our export target of $11 billion by the end of this year because of the slowdown in the United States market -- Indonesia's main textile export market," he said
The Indonesian Food and Beverages Industry Association chairman, Thomas Darmawan, said the industry was projected to drop to between 1.5 percent and 2.5 percent in the third quarter this year, from 3.43 percent in the second quarter.
"The drop is mostly because of the inability of small and medium scale businesses to cope with rising fuel prices. Meanwhile, big scale business seems to be performing well," he said.
Dedi however said he was upbeat that the downward trend would soon pass, given rising purchasing power.
Moreover, he said, crude oil prices had declined to below US$95 per barrel and this would cut manufacturers' operational costs "significantly". -- JP/Mustaqim Adamrah
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