2015: The Year of Continued Industrial Slowdown

Industrial growth has continued to slow down this year, as weak global demand for commodities and pressure on the rupiah have hit overall economic growth and taken their toll on the manufacturing industry.

The country’s manufacturing (non-oil and gas) industry grew by an annual rate of 5.2 percent in the third quarter of this year, a drop from 5.73 percent in the same period last year.

Full-year growth is forecast to be around 5.5 percent, more or less the same as in 2014 and 2013, but a far cry from around 7 percent in 2012 and 2011. 

The government and analysts have argued that weak domestic demand and the economic slowdown in giant economies like China and the US strongly affected the country’s manufacturing sector, which still relies heavily on imports.

In September, the rupiah hit a 17-year low of around Rp 14,200 per US dollar, affecting local manufacturers and consumers.

“The weakening of domestic demand and declining exports have put pressure on our manufacturing sector this year,” said Industry Minister Saleh Husin.

Nevertheless, the country’s industrial growth could still surpass overall economic growth, he added.

Gross domestic product (GDP) growth in Indonesia, where domestic consumption accounts for more than half of the total economy, hit a six-year low of around 4.7 percent annually in the third quarter of this year.

As the country’s economic growth slowed, so did the expansion of its manufacturing businesses. Some industries, however, have become of pockets of steady growth. 

The textile industry recorded the worst performance throughout the year, with some 39,000 workers reportedly laid off. The automotive industry, which is the largest industry in the manufacturing sector, saw a sharp decline in sales.

According to data from the Industry Ministry, textiles and clothing contracted by 0.9 percent and 6.3 percent, respectively, in the third quarter of this year.

For the full year, the two industries are estimated to shrink by 0.6 percent and 6.1 percent, respectively. 

The Industry Ministry’s director general for the chemical, textile and other industries, Harjanto, blamed declining global demand and smuggling of clothes as key factors for declining activity in the two manufacturing industries.

“The Tax Office and the police, however, have started to crack down on illegal clothing imports,” he added.

In October, the Tax Office and the National Police confiscated four containers containing illegally imported fabric, mostly polyester from China, worth Rp 3.3 billion (US$240,400) and 80 containers of coal and mineral ores worth Rp 73.8 billion that were planned to be smuggled overseas. 

While sales in textile goods experienced a slowdown, investment has been on the rise lately. Investment realization in the textile industry grew by 58 percent year-on-year (yoy) to Rp 3.88 trillion in the first half of this year, data from the Investment Coordinating Board (BKPM) showed. 

Meanwhile, the country’s car sales slumped by 16.7 percent 940,271 units in the first 11 months of this year from 1.13 million units during the same period last year.

Defensive sectors like food and beverages, and health, meanwhile, booked steady growth, thanks to several big festivities, steady middle-class spending and the government’s establishment of a national healthcare program. 

The food and beverage industry expanded by 6.95 percent yoy in the third quarter of this year, while the chemical, pharmaceuticals and traditional medicine industry surged by 10.21 percent.

Institute Development of Economics and Finance (Indef) economist Enny Sri Hartati argued that the country had to shift its natural resource-based manufacturing industry to a processing-based industry to record more stable industrial growth in the years ahead. 

Voicing a similar view, Samuel Sekuritas economist Lana Soelistianingsih said previously that the government’s recent stimulus packages were expected to help boost the country’s downstream industries. 

While the year 2015 has seen continued weakness in the manufacturing sector, it has also witnessed revolutionary stimulus packages launched by the government, including an electricity price cut, streamlined business procedures and tax incentives.

Source: http://www.thejakartapost.com, 30/12/15
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