Recently, Statistics Indonesia (BPS) released various data in the context of Indonesia's gross domestic product (GDP). Economic expansion of Southeast Asia's largest economy slowed to 5.78 percent (year-on-year) in 2013. Household consumption accounted for the largest share of Indonesia's GDP (55.8 percent) and continued to grow significantly (5.28 percent yoy) in 2013. This consumer force is one of the main reasons why many foreign companies enter and expand their businesses in Indonesia.
|GDP (current prices)||IDR 9,084 trillion||USD $750.7 billion|
|Household Consumption Spending||IDR 5,071 trillion||USD $419.1 billion|
|Government Consumption Spending||IDR 827 trillion||USD $68.4 billion|
|Gross Fixed Capital Formation/
|IDR 2,876 trillion||USD $237.7 billion|
|Changes in Inventories||IDR 179.8 trillion||USD $14.9 billion|
|Exports||IDR 2,157 trillion||USD $178.2 billion|
|Imports||IDR 2,338 billion||USD $193.2 billion|
Source: Statistics Indonesia (BPS)
Therefore, it is also important for foreign investors to know more about the strength of Indonesia's domestic consumption in 2014 (the year that will see legislative and presidential elections in Indonesia). BPS uses the Consumer Tendency Index (CTI) as an indicator of the latest consumer developments. This index is determined through consumer tendency survey (CTS) reaching 12,245 households across Indonesia in the fourth quarter of 2013.
Although the CTS is expected to have fallen from 109.64 points in the fourth quarter of 2013 to 106.84 points in the first quarter of 2014, BPS maintains the view that consumers' economic conditions remain good. When specified, there are two components forming the value of 106.84 points. This involves an estimate of household income (108.36 points) and planned durable goods purchases (such as electronics, jewelry, communication devices, houses, and land), recreation, and celebrations (104.12 points). In the fourth quarter of 2013, the household income level was at 110.8 points while consumption of food products (including in restaurants) and non-food products (like clothing, housing, education, transportation, communication, health and recreation) at 108.54 points.
That economic conditions of consumers are estimated to decline slightly this year is quite reasonable, given the current high interest rate environment (the central bank's benchmark interest rate is at 7.50 percent since November 2013), as well as high inflation at 8.22 percent (yoy) in January 2014 although having eased slightly from the December 2013 inflation rate of 8.38 percent (yoy). In a statement, Bank Indonesia said that annual inflation is still in a downward trend and will ease more markedly in the months ahead. Kadin Indonesia, Indonesia's Chamber of Commerce, noted that in the year 2014 there will be a decline in Indonesians' purchasing power due to inflation. Still, the country's economic growth will continue to be dominated by private consumption.
In addition, there are interesting findings presented by MasterCard. Last week, MasterCard released The MasterCard Youth Confidence Index. This index is a new initiative from MasterCard and aims to measure the level of confidence among young people aged between 18 and 30 years in the Asia-Pacific region through a survey conducted in 16 countries. Five economic factors were measured, namely employment, the state of the economy, regular income, quality of life today, and the quality of life within the next five years.
Regarding Indonesia, young people in this country believe that regular income will increase in the next six months. Their confidence level was high, marked with a score of 91.4 points. And in the same period, they also believe that employment prospects will be better (score of 89.5). The 'quality of life today' had a score of 70.1 points, while 'quality of life in the next five years' scored 72.6 points, and the state of the national economy in the next five years with a score of 88.8 points (a score of 100 is most optimistic, while zero is most pessimistic).
Meanwhile, Frost & Sullivan recently issued a statement claiming that sales of passenger cars will be the primary driver of growth in the Indonesian automotive market (believed to grow 6.5 percent). Vehicle sales could reach 1.31 million units in 2014 according to the institution. This positive forecast is based on gradual economic recovery and rising demand for affordable and environmentally friendly cars (low cost green cars or LCGCs). This makes clear that the level of consumption in Indonesian society is still well regarded in the midst of economic conditions that have not yet returned to normal.