The manufacturing activities in ASEAN countries have experienced a setback amidst the ongoing global sentiment turmoil. Indonesia's Manufacturing Purchasing Managers' Index (PMI) recorded a decrease to 51.5 in October 2023, down from the previous 52.3, marking the lowest point in the last five months. Despite this decline, Indonesia has remained in an expansionary phase for the past 26 months. PMI uses 50 as a benchmark; if it's above 50, it signifies a business expansion phase, while below 50 indicates a contraction.

When compared to other ASEAN countries, Indonesia's manufacturing PMI still performs relatively well. For instance, Vietnam, Myanmar, and Thailand saw their PMIs drop to 49.6, 49, and 47.5, respectively. In contrast, Malaysia remained stagnant at 46.8.

Not only in ASEAN, but even large countries like China and India have also seen declines in their manufacturing PMIs. China's manufacturing PMI dropped from 50.6 to 49.5, signifying a shift from expansion to contraction. Meanwhile, India's manufacturing PMI dropped significantly, from 57.5 to 55.5.

Reasons Behind the Decline in Manufacturing PMI

The slowdown in manufacturing activities in various countries can be attributed to factors such as conflicts in the Middle East, which led to a significant increase in global oil prices (Brent & WTI), rising production/manufacturing costs, and global demand pressures.

Global oil prices experienced a substantial increase, especially from June to the end of September 2023. In June 2023, global oil prices were around US$70 per barrel, and they rose to approximately US$90 per barrel by the end of September 2023, representing a 28.57% increase in just three months.

The rise in global oil prices has had an impact on production costs, potentially causing inflation in various countries. This has forced companies to increase their product prices to maintain profit margins amidst low global demand.

The weak global demand is reflected in declining exports, especially from China, the world's largest exporter. China's exports have been declining from May 2023 to September 2023.

China's PMI has also experienced a significant drop, moving from an expansion phase of 50.6 in September to a contraction phase of 49.5 in October. China plays a critical role in the Asian economy and contributes 24% to Indonesia's total exports.

The decline in China's exports and imports reflects the country's economic slowdown due to weak global demand for Chinese products and a decrease in domestic demand. China's economic recovery from the pandemic has slowed down in recent months, primarily due to a crisis in the real estate sector.

The World Bank has warned that China's economic slowdown is one of the risks that could affect Indonesia's economic growth, although the impact is more limited compared to other ASEAN countries such as Malaysia and Thailand. The World Bank also noted that a 1% slowdown in China could result in a 0.1 percentage point decrease in Indonesia's growth and almost a 0.6 percentage point decrease in Malaysia.