Update COVID-19 in Indonesia: 836,718 confirmed infections, 24,343 deaths (11 January 2021)
11 January 2021 (closed)
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To assess Indonesia's purchasing power and consumer confidence it is always useful to take a look at car and motorcycle sales because when people are confident about their financial situation and have enough money to spend then they tend to buy cars and motorcycles (motorcycles are particularly popular among Indonesia's huge middle to lower-middle class segment). Meanwhile, cement sales inform about property and infrastructure development. Property development is also closely related to purchasing power and consumer confidence because property development grows when people's demand for property rises.
Car and motorcycle sales in Indonesia slumped 5.3 percent (y/y) and 6.3 percent (y/y), respectively, in the first quarter of 2016. Car sales fell to a total of 267,295 vehicles, while motorcycle sales fell to 1.5 million units in Q1-2016. As such, a preliminary conclusion would be that both Indonesia's purchasing power and consumer confidence are still not back on track. Motorcycle sales in the last month of this year's first quarter give rise to some optimism as these sales grew 3.1 percent (y/y) to 563,341 units from the same month one year earlier. But unfortunately the nation's car sales fell 5.4 percent (y/y) to 94,033 units in March 2016 (from the same month in 2015) and therefore undermine optimism caused by the positive motorcycle sales figure in March 2016. It is particularly worrying that sales of commercial cars (used for transporting goods or paid passengers) dropped considerably.
Jongkie Sugiarto, General Chairman of the Indonesian Automotive Industry Association (Gaikindo), remains optimistic that car sales will improve starting from the second quarter of the year. Gaikindo expects full-year 2016 car sales to expand 5 percent (y/y) to around 1.05 million vehicles. This projection is mainly based on expectation of accelerated economic growth (to 5.3 percent y/y) supported by enhanced government spending (for example on infrastructure development), controlled inflation, a stable rupiah exchange rate, and Bank Indonesia's lower interest rate environment (causing lower borrowing costs).
Cement Sales Indonesia in Quarter I - 2016
Domestic cement sales in Indonesia reached 14.43 million tons in the first quarter of 2016, up 4.3 percent year-on-year (y/y) from 13.84 million tons in the same period one year earlier. Widodo Santoso, Chairman of the Indonesian Cement Association (ASI), said this result was more-or-less in line with the institution's forecast. Growth of cement consumption in Indonesia was particularly supported by the construction of new smelters and power plants as well as toll road construction in North Sulawesi, Lampung (Sumatra) and Central Java. Lastly, the government's one million houses program (involving cheap subsidized housing) also managed to raise cement demand.
Higher cement consumption was detected in all Indonesian regions with the exception of Java (the nation's most populous island) and Kalimantan. In full-year 2016 Indonesia's cement sales are expected to rise modestly to 63 million tons supported by the government's push for infrastructure development and the construction of power plants and smelters by the private sector. Thus, cement consumption is estimated to grow on infrastructure, power plant and smelter development, not so much on residential property development, which has remained bleak so far this year. Declining cement sales in Indonesia's most populous island of Java also signals that property development remains subdued here.
This would also imply that Indonesia's Q1-2016 GDP growth will not be pushed significantly higher by Indonesia's household consumption (the official GDP figure is expected to be released in early May). It will depend largely on the success of government spending whether Q1-2016 GDP growth can remain above the five percent (y/y) mark. We do expect Indonesia's purchasing power to improve later this year as inflation has been controlled for a couple of months in a row now (around 4 - 5 percent y/y from nearly double digit figures in recent years), while the rupiah rate has stabilized after depreciating sharply between mid-2013 and late 2015. Lastly, Bank Indonesia has cut its key interest rate (BI rate) by 75 basis points during the first three months of 2016 (to 6.75 percent), a move that should boost demand for loans (in Indonesia the majority of car and motorcycle sales are done through a loan). However, considering Indonesia's car, motorcycle and cement sales in Q1-2016, household consumption will not be able to boost the nation's Q1-2016 GDP growth figure. Boosting GDP growth in Q1-2016 will be the task of the government through optimized spending.
Indonesian Car, Motorcycle & Cement Sales:
(in million tons)