Jakarta. Indonesia's manufacturing sector stabilized in May after contracting in the previous month, supported by stronger domestic demand, although surging raw material costs, supply shortages, and weakening exports continued to weigh on production, according to the latest S&P Global survey.

The S&P Global Indonesia Manufacturing Purchasing Managers' Index (PMI) rose to 50.0 in May from a 10-month low of 49.1 in April. A reading above 50 signals expansion, while a figure below 50 indicates contraction.

"The Indonesian manufacturing economy remained under pressure in May as output was constrained by rising raw material prices and limited input availability," said Usamah Bhatti, economist at S&P Global Market Intelligence in his note on Tuesday.

"Although firms recorded stronger sales growth, this often reflected efforts by clients to build inventories amid price and supply disruptions. At the same time, improvements in demand were confined to the domestic market, as export sales fell at the sharpest pace in nearly five years," Bhatti said.

The survey showed new orders increased for a second consecutive month and at the fastest pace since February, driven largely by improving domestic demand. Some manufacturers reported that customers were building inventories in anticipation of further price increases and supply disruptions.

However, export demand remained under pressure. Overseas sales declined for a third straight month, recording the steepest contraction since August 2021. Companies cited the ongoing conflict in the Middle East and rising prices as key factors dampening foreign demand.

Despite stronger order inflows, manufacturing output fell for a third consecutive month, although the pace of decline eased from April. Producers pointed to rising raw material costs and limited availability of inputs as major obstacles to production.

Supply-chain challenges also intensified. Manufacturers reduced purchasing activity and drew down inventories of raw materials as shortages made it difficult to secure supplies. Average supplier delivery times lengthened for an eighth consecutive month amid delivery delays and material shortages linked to geopolitical disruptions.

The strain on supply chains led to a rise in backlogs of work for the first time since February, indicating growing capacity pressures. Employment also declined for a third straight month, though the reduction was marginal as firms adjusted staffing levels to weaker production requirements.

Cost pressures accelerated sharply during the month. Input price inflation climbed to its second-highest level since the survey began, surpassed only by the record set in September 2013. Manufacturers widely attributed higher costs to rising raw material prices.

In response, companies raised selling prices at the fastest rate since October 2013, seeking to pass increased costs on to customers.

Looking ahead, manufacturers remained cautiously optimistic that output would recover over the next 12 months, supported by expectations that supply shortages and cost pressures would eventually ease. However, overall business confidence remained below its long-run average, reflecting uncertainty over the timing of any recovery.

Data from the Central Statistics Agency (BPS) showed Indonesia recorded a goods trade surplus of $89.1 million in April, extending an unbroken streak of monthly surpluses to 72 months since May 2020. Cumulatively, Indonesia posted a trade surplus of $5.64 billion in the first four months of 2026, supported by a non-oil and gas surplus of $14.16 billion, which offset a $8.52 billion deficit in the oil and gas sector.

The United States remained Indonesia's largest source of trade surplus during the January-April period, contributing $5.76 billion, followed by India with $4.41 billion and the Philippines with $2.93 billion.