The textile industry in Indonesia is currently facing severe pressure. In the domestic market, slowing economic growth has led to a decline in people’s purchasing power resulting in low demand for textile products. Declining demand, accompanied by increased production costs, has caused manufacturers to reduce their production capacities. As a result, the performance of the industry over the first quarter of 2015 was relatively poor, suffering a contraction with a negative growth of 0.98 per cent year-on-year.

Given the large share of exports, the performance of the textile and clothing industry is sure to be greatly influenced by global economic conditions, particularly in the US and Europe, which represent Indonesia’s largest apparel export markets. One constraint is the lack of free trade agreements in place with key export destinations, such as the US and the EU, with whom Indonesia’s major textile competitors, such as Vietnam and Malaysia, already have free trade agreements.

In the domestic market, an obstacle facing the industry comes from the influx of imported products into the country, particularly those from China and Korea. This increasingly reduces the competitiveness of Indonesian products in the domestic market where imported products could be up to 20 per cent cheaper.