Industrial Confidence Index Rises to 52.95, Driven by Domestic Demand

The Indonesian Ministry of Industry reported a rise in the Industrial Confidence Index for November 2024, increasing by 0.20 points to 52.95, up from 52.75 in the previous month. This marks a year-on-year growth of 0.52 points compared to November 2023.

According to Indonesian Ministry of Industry spokesperson Febri Hendri Antoni Arif, this growth reflects an ongoing expansion in industrial performance.

He highlighted the 21 subsectors, contributing 99.3% to the non-oil and gas manufacturing GDP in Q2 2024, played a key role in driving the index upward.

“November’s Industrial Confidence Index growth is supported by the expansion of the new orders index, which rose 2.58 points to 54.2, and the inventory index, which, despite declining 1.18 points from the previous month, remained in expansion at 54.68,” Febri explained in a press release on Thursday, November 28, 2024, as cited by Bisnis.com.

However, the production index contracted to 49.72, declining by 2.84 points from the previous month, ending two consecutive months of expansion. Febri attributed this contraction to the rising value of the US dollar against the rupiah, which increased the cost of imported raw materials, while domestic sales were conducted in rupiah.

Domestic Market Outperforms Exports

The Industrial Confidence Index improvement is also linked to domestic industrial responses to new government programs under President Prabowo Subianto, such as industrial downstreaming initiatives and free nutritious meal programs.

Approximately 75% of domestic manufacturing output is marketed locally, with a 75:25 ratio favoring the domestic over export markets.

Analysis by the Industrial Confidence Index team shows that domestically focused industries performed better than export-oriented ones. The domestic market index stood at 53.33, compared to 52.39 for export-oriented industries, supported by expansions in 20 subsectors.

Febri noted that public confidence in the new government also contributed to improved business activity, with 30.8% of industries reporting better conditions in November, compared to 22.2% reporting declines. Optimism for the next six months also rose slightly by 0.1%.

The November Industrial Confidence Index was significantly boosted by three subsectors:

Electrical Equipment Industry – Driven by the completion of state electricity company PLN’s projects and increased procurement of charging equipment for electric vehicle charging stations (SPKLU).
Beverage Industry – Supported by the regional elections held nationwide and preparations for the Christmas and New Year holidays.
Printing and Media Reproduction Industry – Also benefited from the regional elections and holiday preparations.

Two subsectors experienced contraction:

Miscellaneous Processing Industry – Heavily reliant on exports, such as false eyelashes, jewelry, toys, sports equipment, and musical instruments, which saw reduced demand due to slowing economies in export markets.
Repair and Installation of Machinery and Equipment – Declined due to reduced domestic demand as companies prioritized efficiency amidst global uncertainty.

Global and Domestic Economic Pressures

Despite the overall positive performance, analysts highlighted challenges, including geopolitical tensions and the U.S. presidential election, which contributed to economic slowdown and rupiah depreciation in November.

Many manufacturers are holding back production, awaiting policies from the newly elected U.S. president, reported by id.investing.com.

Policy Recommendations

To sustain domestic market growth and bolster the manufacturing sector, Indonesian Ministry of Industry emphasized the importance of coordinated pro-industry policies.

Febri called for measures to limit the entry of imported finished goods, ensuring protection for domestic industries and maintaining their dominance in local markets.

“Indonesian Ministry of Industry believes that supportive policies from other ministries and agencies will enhance industry confidence and further improve the Industrial Confidence Index.” Febri concluded.

Promising Opportunities for Investors

The rise in Indonesia’s Industrial Confidence Index in 2024, driven by robust domestic demand, signals a promising environment for investors.

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