After several challenging months, Indonesia manufacturing industry is finally showing encouraging signs of recovery. Fresh data released by S&P Global suggests the sector has returned to expansion territory, offering a positive signal for businesses as the third quarter of 2026 begins. While several challenges remain, manufacturers are becoming more confident that conditions will continue to improve in the months ahead.
The latest Purchasing Managers’ Index (PMI) reached 50.2 in July 2026, up sharply from 46.9 recorded in June. Since the PMI uses 50 as the dividing line, a reading above that level indicates business expansion, while any figure below 50 reflects contraction. The latest result therefore marks a return to growth after the manufacturing sector slipped into contraction the previous month.
One of the biggest drivers behind the rebound was the recovery in factory output. Production increased for the first time since February 2026, ending four straight months of decline. Although the improvement was still relatively modest, manufacturers reported that demand had started to recover as customer confidence gradually strengthened.
The recovery was also supported by stable new orders. After experiencing a sharp decline in June, incoming orders stopped falling in July. Several companies even reported stronger sales, helped by improving customer confidence and the launch of new business projects. Even so, the recovery has not been evenly distributed. Businesses continue to face pressure from intense market competition and higher selling prices, both of which are limiting stronger growth in demand.
Despite the positive domestic momentum, export performance remains a weak spot. New export orders declined for the fifth consecutive month, indicating that demand from overseas markets has yet to recover. This suggests that while domestic business conditions are improving, international markets are still presenting significant challenges for Indonesian manufacturers.
Higher raw material prices also remain one of the biggest obstacles to a faster recovery. Rising input costs continue to squeeze manufacturers and reduce the pace of expansion. These cost pressures have prevented businesses from fully capitalizing on the recent improvement in demand.
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Supply chain conditions, however, have started to show gradual improvement. Delivery times for raw materials continued to lengthen because of shipping disruptions, marking the tenth consecutive month of delays. However, the slowdown was the mildest recorded during that period. Some companies also reported better material availability, providing another positive signal that supply conditions may gradually normalize.
Business sentiment has also improved considerably. Manufacturers are now more optimistic about the next 12 months, with confidence reaching its highest level in six months and its strongest point since January 2026. Many businesses expect customer confidence and sales growth to continue improving. They also hope that easing price pressures will create better conditions for further business expansion.
Looking ahead, the sustainability of Indonesia manufacturing recovery will depend on several external factors. Global commodity prices and geopolitical developments in the Middle East are expected to play an important role in shaping market conditions. Their impact will determine whether the sector can build on its current momentum or face another period of slower growth.
