TEMPO.CO, Jakarta - Standard & Poor’s Global Ratings (S&P) reported that Indonesia’s manufacturing sector returned to expansion territory in May 2026, with the Purchasing Managers’ Index (PMI) rising to 50.0 from 49.1 in April.
The improvement signals a stabilization in business conditions after a contraction in the previous month. However, manufacturers continued to face significant challenges, including rising raw material costs and shortages of production inputs.
“Indonesia’s manufacturing economy remained under pressure in May, as production was constrained by higher raw material prices and limited input availability,” said Usamah Bhatti, economist at S&P Global Market Intelligence, in a report released on Tuesday, June 2, 2026.
New orders increased for a second consecutive month, recording the strongest growth since February. The expansion was driven mainly by stronger domestic demand. In contrast, export performance weakened considerably, with international sales falling for a third straight month. The decline was the sharpest since August 2021.
Survey respondents attributed the drop in export orders to the ongoing conflict in the Middle East and rising prices, which weighed on global demand.
Despite stronger demand, manufacturers continued to struggle with escalating raw material costs, which put pressure on production activity. As a result, factory output contracted for a third consecutive month, although the pace of decline eased compared with April.
Employment levels also fell for a third straight month as companies adjusted to lower production volumes, though the reduction in staffing was only marginal.
Inflationary pressures intensified during the month. Input cost inflation accelerated to its highest level since September 2013, driven largely by higher raw material prices. Manufacturers responded by passing part of the increased costs on to customers, resulting in the sharpest rise in selling prices since October 2013.
Rising prices and shortages of key inputs also weighed on purchasing activity. Many companies reported drawing down pre-production inventories as they struggled to secure raw materials. At the same time, limited production capacity forced firms to rely on existing stocks to meet customer orders.
Supply chain conditions remained strained. Average supplier delivery times lengthened for an eighth consecutive month, reflecting ongoing delays and material shortages linked to geopolitical tensions affecting supplier performance.
Backlogs of work increased for the first time since February, as shortages of raw materials hindered companies’ ability to fulfill orders on time.
Despite these challenges, manufacturers remained optimistic about the year ahead. Business confidence strengthened compared with April, with firms expecting production growth to recover over the next 12 months, although overall sentiment remained below historical averages.
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