Update COVID-19 in Indonesia: 130,718 confirmed infections, 5,903 deaths (12 August 2020)
12 August 2020 (closed)
USD/IDR (14,917) +40.00 +0.27%
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Jakarta Composite Index (5,233.45) +43.29 +0.83%
Despite the improving export performance (supported by improving commodity prices), it may be difficult for Indonesia to deliver +5 percent year-on-year (y/y) gross domestic product (GDP) growth in the first quarter of 2017. Main reason is subdued consumer purchasing power due to higher electricity tariffs in Southeast Asia's largest economy. Therefore, economic growth of Indonesia is expected to be rather similar to the 4.92 percent (y/y) growth pace recorded in Q1-2016.
Based on statements of the Association of Indonesian Retailers (Aprindo), retail sales in Indonesia are expected to fall sharply to IDR 30 trillion (approx. USD $2.3 billion) in the first quarter of 2017. This is caused by higher electricity tariffs. Whereas Indonesian 900-VA households only paid IDR 80,000 per month before the price adjustments, they now have to pay IDR 180,000 per month as the government continues its quest to curtail energy subsidies.
This implies households, especially the lower middle income segment, have less money to spend on other products and services. Considering household consumption accounts for about 58 percent of total economic growth of Indonesia, there is a big and direct link between consumer purchasing power and economic growth.
Meanwhile, credit growth also remained subdued in Indonesia in Q1-2017, reflecting bleak appetite of consumers to purchase items such as a house or motorcycle, as well as companies' bleak appetite to invest in business expansion. A survey of Indonesia's central bank (Bank Indonesia) shows applications for bank loans (weighted net balance) in the first quarter of 2017 dropped to 52.98 percent from 85.6 percent in Q4-2016.
Lana Soelistianingsih, Head Economist at Samuel Sekuritas, adds that government spending was also bleak in the first quarter of 2017. Thus, Q1-2017 GDP growth is primarily dependent on private investment realization and the improvement in exports (in terms of value due to rising commodity prices, the export performance improvement is not backed by rising volumes).
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
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Source: Statistics Indonesia (BPS)