The global rating agency Standard & Poor’s (S&P) Global Ratings has reported a pivotal shift in Indonesia’s manufacturing sector. In May 2026, the Purchasing Managers’ Index (PMI) climbed to 50.0, effectively pulling the sector back into the expansion zone from April’s reading of 49.1.
Despite this recovery to the neutral threshold, the manufacturing landscape remains under significant strain. According to the S&P Global Market Intelligence report released on Tuesday, June 2, 2026, firms are grappling with a paradox: while new orders are on the rise, production is being severely hampered by surging raw material costs and persistent supply chain bottlenecks.
Economist Usamah Bhatti noted that the manufacturing economy faced considerable pressure throughout May, as production capacities were constrained by both high input prices and limited availability of essential materials. While new order volumes grew for the second consecutive month—marking the strongest growth rate since February—the momentum was almost entirely fueled by domestic demand.
Conversely, the international trade sector paints a grimmer picture. Exports have seen a sharp decline, marking three consecutive months of contraction. In fact, this latest dip represents the steepest decline since August 2021, with panelists citing geopolitical tensions in the Middle East and rising global prices as primary factors dampening demand abroad.
The domestic production cycle is similarly hindered. Due to the high cost and scarcity of raw materials, many companies have been forced to cut their workforce for the third consecutive month, although the decline remains marginal. Furthermore, production output has fallen for three months straight, albeit at a slightly more moderate pace than seen in April.
Inflationary pressures are also reaching a critical point. Input cost inflation hit a level not seen since September 2013. In response, companies are attempting to pass these costs onto their clients, resulting in the fastest increase in production prices since October 2013.
To navigate these shortages, businesses are increasingly relying on existing pre-production inventories to fulfill orders. Supply chain disruptions have exacerbated these issues, with lead times extending for eight consecutive months due to delivery delays and shortages linked to ongoing global conflicts.
Adding to the pressure, the volume of unfinished business rose for the first time since February, as supply constraints limited the ability of manufacturers to clear their order books. Despite these logistical hurdles, optimism remains; companies express confidence that production growth will recover over the coming year, with business sentiment showing a slight uptick in strength compared to April.
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Summary
Indonesia’s manufacturing sector reached a neutral Purchasing Managers’ Index (PMI) of 50.0 in May 2026, signaling a recovery from the previous month’s contraction. While domestic demand has driven two consecutive months of growth in new orders, production output continues to suffer due to significant supply chain bottlenecks and record-high raw material costs.
International trade remains weak, with exports experiencing their steepest decline since 2021 due to global geopolitical tensions. Despite these challenges, including rising inflation and workforce reductions, businesses maintain a sense of optimism regarding production growth and market recovery over the coming year.