Indonesia’s Manufacturing Rebound and Export Resilience: A Strategic Opportunity for Long-Term Investors

Indonesia’s manufacturing sector is surging back to life, and investors who act now could position themselves to ride a wave of sustained growth. The latest August 2025 S&P Global Indonesia Manufacturing PMI data paints a compelling picture: the index rose to 51.5, up from 49.2 in July, marking the strongest expansion since March 2025 [1]. This rebound is driven by a 12-month high in new orders, fueled by both domestic demand and a sharp uptick in export activity. Export orders grew at the steepest rate since September 2023, while employment levels finally showed a modest increase after three months of stagnation [1]. These metrics suggest that Indonesia’s industrial engine is not just recovering—it’s accelerating.

The U.S.-Indonesia trade deal signed in July 2025 adds another layer of optimism. By slashing U.S. reciprocal tariffs on Indonesian manufacturing exports from 32% to 19%, the agreement reduces a major headwind for Indonesian exporters [2]. Simultaneously, the U.S. has granted tariff exemptions for key Indonesian agro-industrial products like palm oil and cocoa, which are critical to the country’s trade balance [1]. While critics argue the deal could erode Indonesia’s policy autonomy, the immediate economic benefits—such as lower input costs and improved access to the U.S. market—position the sector for long-term gains.

What’s particularly striking is the sector’s resilience amid global headwinds. Input cost inflation remains below the long-run average, and selling prices are rising at the fastest pace since July 2024, signaling strong pricing power [1]. This is a critical advantage for Indonesian manufacturers, as it allows them to pass on cost pressures to consumers without sacrificing margins. Meanwhile, the Coordinating Minister for Economic Affairs, Airlangga Hartato, has underscored the country’s “solid fundamentals,” citing Q2 2025 GDP growth of 5.12% as proof of structural strength [3].

However, the path isn’t without risks. Foreign direct investment (FDI) into Indonesia fell by 6.95% year-on-year in Q2 2025, the largest decline since 2020 [4]. While this drop is concerning, it’s likely a short-term blip. The trade deal’s full benefits—such as reduced compliance costs for U.S. firms and streamlined regulatory alignment—will take time to materialize. For patient investors, this dip in FDI creates an opportunity to enter the market at a discount, especially in sectors like electronics, textiles, and agro-processing, where Indonesia has a comparative advantage.

The rupiah’s 5.68% depreciation in 2025 also works in Indonesia’s favor. A weaker currency boosts export competitiveness, making Indonesian goods more attractive in global markets [4]. This dynamic is particularly beneficial for commodity-linked assets, such as palm oil and nickel producers, which are poised to capitalize on both currency tailwinds and the U.S. tariff exemptions.

For long-term investors, the case is clear: Indonesia’s manufacturing sector is navigating a perfect storm of demand, cost discipline, and policy tailwinds. While short-term volatility—such as the recent FDI decline—should be monitored, the fundamentals point to a durable recovery. Strategic entry into Indonesian equities or commodity-linked assets now could yield outsized returns as the sector consolidates its gains and scales into new markets.

Source:
[1] Indonesia Manufacturing PMI, [https://tradingeconomics.com/indonesia/manufacturing-pmi]
[2] The United States and Indonesia Reach Historic Trade Deal, [https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-the-united-states-and-indonesia-reach-historic-trade-deal/]
[3] Indonesia’s Economic Fundamentals Solid: Airlangga Hartato, [https://www.metrotvnews.com/read/bzGCRV7Z-indonesia-s-economic-fundamentals-solid-airlangga-hartato]
[4] Indonesia’s FDI drops 6.95% y/y in Q2, biggest fall since 2020, [https://www.reuters.com/world/asia-pacific/indonesias-fdi-drops-695-yy-q2-biggest-fall-since-2020-2025-07-29/]