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Consumers perceive economy as bleak
Confidence among Indonesian consumers is deteriorating, according to recent surveys, as concerns over a lack of jobs mount and secondary spending drops against the backdrop of sluggish domestic economic growth
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Confidence among Indonesian consumers is deteriorating, according to recent surveys, as concerns over a lack of jobs mount and secondary spending drops against the backdrop of sluggish domestic economic growth.
Bank Indonesia’s (BI) Consumer Confidence Index in July dropped for the third consecutive month, with its consumer perception of “availability of jobs” falling to “pessimistic” territory. Nielsen Indonesia also found that consumer concern about the economy went up sharply to 37 percent in the second quarter from 31 percent in the previous quarter.
The central bank’s Consumer Confidence Index dropped to 124.8 in July from 126.4 in June. Although the confidence index stayed in the “optimistic” zone, one of the key components for the Economic Condition Index, “availability of jobs”, fell into “pessimistic” territory at 96.6 in July from 101 in June.
“The global slowdown has had an impact on the domestic economy, resulting in weak commodity prices in some affected areas,” said state-run Bank Mandiri chief economist Andry Asmoro. “The lower-middle class consumers still need the government’s social assistance to help strengthen their purchasing power.”
Indonesia’s economic growth slowed to 5.05 percent in the second quarter of this year, down from 5.07 percent in the previous year, despite high consumer spending that accounts for more than half of the country’s economy, supported by the Idul Fitri holiday and general election, Statistics Indonesia (BPS) reported on Aug. 5.
“Indonesia missed the opportunity to boost its economy when there were payroll bonuses and remittances from overseas workers during Idul Fitri and spending for the general election in April [as well as] an increase in consumer spending in the second quarter,” said Institute for Development of Economics and Finance (Indef) executive director Tauhid Ahmad on Aug. 7.
The trend is reflected in the way Indonesians utilize their spare cash, as consumer concern about the state of the country’s economy spiked in the second quarter, said Nielsen Indonesia managing director Agus Nurudin.
Consumer spending on leisure activities dropped, with spending on out-of-home entertainment declining to 28 percent in the second quarter from 31 percent previously, and spending on vacations dropping to 44 percent from 47 percent.
“This is proof that Indonesian consumers are quite agile in responding to the country’s economic changes. They know what to do when they feel less secure about their finances,” said Agus, citing a survey that found that consumer perceptions of personal financial security also decreased to 80 percent in the second quarter from 83 percent.
The April to June period also marked the first time for a while that consumer concern about political stability decreased to 26 percent from 34 percent in the first quarter of this year.
“Indonesian consumers seem to be calmer in responding to political activities occurring in the country after the reconciliation among political elites. However, they are less certain about the postelection economic circumstances,” added Agus.
The proportion of Indonesian consumers who think the country is in a state of recession increased considerably to 57 percent in the second quarter from 51 percent in the first quarter, although Nielsen noted it did not necessarily explain consumer confidence.
Even so, by Nielsen standards, Indonesian consumers remain the third-most optimistic in the world with a score of 126 points, after India (138 points) and the Philippines (130 points).
BI Deputy Governor Dody Budi Waluyo said the economic uncertainty caused by the trade war between the United States and China still had a negative impact on the economies of developing countries, including Indonesia.
He said the trade war would continue to affect export performance and investment in the coming months.
“With exports slowing, demand for production is also decreasing. Foreign exchange earnings are also declining,” explained Dody. “It will reduce incomes, which will in turn result in a decline in consumer spending,” he added. (syk/nal/eyc)
