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Indonesia's household spending set to take even greater hit: Fitch Solutions
Retail sales in Southeast Asia’s largest economy fell 12.3 percent in July from a year earlier, a smaller drop than the previous month's 17.1 percent contraction, a Bank Indonesia (BI) survey found on Wednesday.
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Sellers wear face shields at Petisah Medan traditional market in North Sumatra on July 17. Indonesia’s household spending will take a greater hit than previously expected this year as Jakarta goes back into large-scale social restrictions (PSBB) to curb coronavirus spread, Fitch Solution says. (Antara/Septianda Perdana)
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ndonesia’s household spending will take a greater hit than previously expected this year as Jakarta goes back into large-scale social restrictions (PSBB) to curb the spread of the coronavirus, Fitch Solution has said, warning it will take longer for it to recover to pre-pandemic levels.
The pandemic will have a greater negative impact on consumer spending habits than the 2008 financial crisis, analysts at Fitch Solutions wrote in a note, explaining that household spending could contract by 1.8 percent year-on-year (yoy) this year.
“When Indonesia emerges from this second lockdown, we warn that the demand side risks we have witnessed play out in other nations that have been through lockdown, will further damage Indonesia's consumer spending recovery,” Fitch said, adding that retail sales would take longer to recover and would likely see worse contractions over the next few months.
Retail sales in Southeast Asia’s largest economy fell 12.3 percent in July from a year earlier, a smaller drop than the previous month's 17.1 percent contraction, a Bank Indonesia (BI) survey found on Wednesday. The survey projected retail sales in August to fall 10.1 percent from the same month last year.
“While the government is supporting households through a number of programs, the economic realities of multiple periods of lockdown will weigh on spending over the remainder of the year,” Fitch said. It expects the economy to contract 1.3 percent this year.
Indonesia’s unemployment rate is also projected to increase to 9.5 percent this year, up from around 5.2 percent last year, as millions of people lose their jobs amid the prolonged pandemic.
The eventual reopening of the economy along with the government’s stimulus plans will lead to a recovery in consumer spending next year, Fitch went on to say, with the possibility that household spending will grow 3.6 percent in 2021, which is above the pre-pandemic levels.
Indonesia’s annual gross domestic product (GDP) is set to contract for the first time since the 1998 Asian financial crisis as the government struggles to control the COVID-19 pandemic and contain its economic fallout.
Finance Minister Sri Mulyani Indrawati said the government had revised its GDP outlook down to an annual contraction of between 0.6 and 1.7 percent as uncertainty surrounding the pandemic has taken a significant toll on consumption and business investment.
The government expects household spending, which accounts for more than half of the nation’s GDP, to remain weak and to contract by between 1 and 2.1 percent.
