The Jakarta Post
Firms are holding back expansion and maintaining a “waitand-see” approach, hoping an improvement in people’s purchasing power will be brought into play.
With a population of more than 250 million people, household consumption holds a key role in the economy.
It traditionally contributes to more than half the gross domestic product (GDP), but the latest statistics show that it may be slowly running out of steam and that worries businesses.
“The economy has to be carefully managed [by the government] because it streams down to people’s purchasing power. If there is no improvement in purchasing power, everybody will hold off from spending,” Indonesian Employers Association (Apindo) chairman Hariyadi B. Sukamdani told a press briefing on the sidelines of the Apindo CEO Gathering on Friday.
Data from the Central Statistics Agency (BPS) shows household consumption expanded 5.01 percent in the third quarter of last year, lower than the 5.04 percent recorded in the previous quarter.
As household consumption slowed, so did the overall GDP. The GDP growth stood at 5.02 percent in the third quarter, down from 5.19 percent in the second quarter.
The BPS is set to announce the 2016 full-year economic growth on Monday.
Hariyadi said companies would carefully take into account the latest situation, fearing that piling stocks that were unsold due to low demand would instead hurt their cash flow.
A Bank Indonesia consumer survey shows the consumer confidence index fell to 115.4 in December from 115.9 in November and 116.8 in October. An index above 100 indicates consumer optimism, while that below 100 reflects pessimism.
The government recently approved a regulation that sets an increase of 8 percent in this year’s minimum wage, lower than 13 percent in 2016.
When combined with accelerating inflation, the lower wage growth is predicted to lead to a real income growth of 4 percent only in 2017, falling from 10 percent in 2016, according to securities firm Mandiri Sekuritas.
The inflation rate itself is forecast to hover at around 4 percent this year, higher than 3.02 percent in 2016.
This year’s real income growth will be the lowest since 2010 and past experience shows that such a low figure does not bode well for private consumption, said Mandiri Sekuritas analyst Adrian Joezer.
Mandiri Sekuritas expects to see no pickup in companies’ capital expenditure (capex) cycle this year, a continuation of lower capex growth since 2013.
However, manufactures’ capacity utilization rates have so far reached 76 percent after years of underinvestment and “this could surprise our expectations,” Adrian said.
Companies usually increase their production capacity when they reach 80 percent.
Meanwhile, Apindo says firms have set their growth targets modestly at between 10 percent and 20 percent this year.
It argues that the gloomy situation can be reversed if the government creates policies that encourage the establishment of import substitution manufacturing in the country and add value to local products.
“The state and businesspeople have to create jobs to boost purchasing power too. Jobs will ensure quality purchasing power, compared to instant cash stimulus,” Hariyadi said, reiterating that businesspeople would expand if there was an increase in purchasing power.
Finance Minister Sri Mulyani Indrawati, who attended the gathering, said the government would continue to support businesses by cutting red tape and “cleaning up” the tax office.
“We have the commitment, we have a really hands-on president regarding bureaucratic matters,” she said.
The government has issued 14 economic policy packages since September last year to encourage private investment.
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