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Anemic sales growth points to limited purchasing power
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The growth of the automotive industry and car ownership in Indonesia. (-/-)
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t the beginning of this year, Jakarta-based programmer Ciptoning Hestomo planned to fulfill his long-held dream of buying a seven-seater car so that he could take his parents on a road trip to their hometown in Yogyakarta.
“It’s going to be easier for them to travel around Yogyakarta, where much of the public transportation stops operating in the evening,” the 27-year-old told The Jakarta Post on Friday.
However, Ciptoning’s plan blew up in his face as he was forced to tighten his belt due to unexpected spending, including on his own tuition. “A few months back, I tried my luck applying for a master’s degree and was accepted. So, as for the car, maybe some other time,” Ciptoning said.
Institute for Development of Economics and Finance (INDEF) senior researcher Iman Sugema said the recent economic slowdown had discouraged people from spending money on expensive tertiary goods,
such as cars.
“Amid current conditions, people will be more selective in spending, as their purchasing power has been weakened. Hence, it’s natural to see people postpone the purchase of durable goods like cars,” Iman said.
Indeed, the slowdown in the country’s economy has also affected the automotive industry. Car sales serve as an important indicator of consumer spending, which traditionally contributes the lion’s share to Indonesia’s gross domestic product (GDP).
The latest data from the Association of Indonesian Automotive Manufacturers (Gaikindo), published Thursday, show that 91,990 cars were sold domestically in October. That brings total car sales for the first 10 months of the year to 874,847 units, marking annual growth of only 2.55 percent.
Weak consumer spending appears to be in line with inflation, which climbed by a mere 2.11 percent year-on-year in the January to October period. In October, inflation stood at 3.31 percent.
Gaikindo has set a modest target for car sales this year. It aims to see 1.05 million cars sold before year-end, which would mark only a slight increase from last year’s sales of 1.013 million.
“Our target is always based on the country’s economic growth. Therefore, as the government has forecast growth of 5.1 percent next year, which is more or less the same as this year’s, we predict car sales will only reach 1.1 million units in 2017,” Gaikindo co-chairman Jongkie Sugiarto said.
Against the backdrop of a weak global economy, Indonesia saw its GDP increase only 4.79 percent last year, the lowest rate in six years, due to weak domestic demand and lower exports.
President Joko “Jokowi” Widodo’s administration has announced a total of 14 stimulus packages to boost the economy since September last year.
Moreover, Bank Indonesia (BI) has eased monetary policy, including by cutting its seven-day reverse repo rate, the central bank’s benchmark interest rate, by 25 basis points to 4.75 percent.
However, Centre of Strategic and International Studies (CSIS) department of economics head Yose Rizal Damuri said those policies were not enough to stoke growth.
“The government has launched many supply-side policies, including its economic packages, that won’t have any impact in the short run. We need demand-side policies that are aimed at certain social groups, especially lower-income earners,” he said.
