Indonesia's manufacturing PMI disappoints for 3 months in a row

Index slipped to 49.7.

According to HSBC Global Research, the firm's Indonesia manufacturing PMI slowed for a third straight month in January. For the first time since May 2012 the index slipped to below 50.0, reflecting a contraction in manufacturing activity, albeit only marginally (49.7 vs 50.7 in December).

Despite the marginal weakness in the PMI headline, the fact that new orders are still expanding (in particular new export orders are also accelerating) while the backlogs of work continue to rise leaves us optimistic still on the manufacturing outlook.

Here's more from HSBC:

On a slightly less positive note, we continue to worry about inflationary pressures. Although the bad weather may have been an additional factor behind the rise in both input and output prices, inflation tends to be sticky, particularly when aggregate demand is strong, as is the case now.

Against this backdrop, monetary tightening will be necessary. In our view this is likely to continue to take the form of gradual FASBI hikes in the coming months.

Manufacturing sector activity may have contracted a touch in December, but the PMI sub-components suggest that weather played a large factor, and that there is no cause for concern in terms of the manufacturing outlook. At the same time, the persistence of inflation is likely to persuade Bank Indonesia to maintain its tightening bias.