Why Indonesia’s Manufacturing Activity Contracted In January 2018

According to Markit Economics, Indonesia’s (IDX) (ASEA) manufacturing PMI (purchasing managers’ index) contracted between December 2017 and January 2018, to 49.9 from 49.3, missing the market expectation of 50. A level below 50 indicates a contraction in activity. 

Indonesia’s manufacturing PMI in January was based on the following factors:

• production volume and output remained stable
• new orders and export orders declined
• employment in the manufacturing sector fell

The appreciation of the rupiah against the US dollar (UUP) hampered the country’s exports in January 2018 and pressured various businesses. Weaker manufacturing activity is a major concern for the economy.

The VanEck Vectors Indonesia ETF (IDX), which tracks Indonesia’s economy, rose 5.6% in January 2018. The Global X FTSE Southeast Asia ETF (ASEA), which tracks Southeast Asia’s economy, rose 5.3%. For more on the state of the economy, read Why Ray Dalio Thinks Recession Risk Is Rising.