Update COVID-19 in Indonesia: 1,769,940 confirmed infections, 49,205 deaths (22 May 2021)
7 June 2021 (closed)
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Within Indonesia it is still being debated whether consumers' purchasing power has really weakened in the third quarter. Some argue consumers are currently focused on saving their money rather than spending it (this explains rising third-party funds in Indonesia's banking system). Others argue that Indonesia's household consumption data are distorted because this year's Ramadan and Idul Fitri celebrations fell in the second quarter of the year (whereas in 2016 these celebrations fell in Q3).
Bambang Brodjonegoro, Head of National Development Planning (Bappenas), emphasizes that Indonesia's household consumption (based on recently releases data from Statistics Indonesia) has in fact strengthened - by 4.93 percent year-on-year (y/y) - in the third quarter of 2017. However, the pace of growth has slowed modestly. Brodjonegoro attributes this slower pace of growth to the shift of Ramadan and Idul Fitri celebrations to the second quarter of 2017. During this period Indonesian consumers traditionally increase their purchases of various products, ranging from food items to shoes and bags.
Based on data from the National Socio-Economic Survey (in Indonesian: Survei Sosial Ekonomi Nasional, or Susenas), all ten income groups in Indonesia consumed more products and services in Q3-2017 than in the past. The biggest growth occurred among the middle class and upper class segments. Improvement in consumption among the lowest 40 percent of income earners, however, was limited. Therefore, Brodjonegoro said the government needs to put more effort into this issue because without government action it can increase the level of income inequality in Indonesia (while income inequality already is big problem in Indonesia, reflected by a Gini ratio of 0.40 at the end of 2016).
Another interesting matter is that there occurred a significant rise in spending on services that are related to leisure activities in the third quarter of 2017. According to Brodjonegoro, those lower income earners who have shifted into the middle income earners group are now spending their money on domestic tourism rather than buying household products. Rising spending on education and health was also detected. Brodjonegoro believes this is part of the same phenomenon: there occurred a change in Indonesia's spending habits due to the nation's rising middle class (who started to spend more on tourism, health and education).
Other data that strengthen the notion of Indonesia's purchasing power not having weakened are rising consumer credit in Indonesia's banking system as well as a healthy consumer confidence index. These data contradict the notion of weakening purchasing power.
Meanwhile, Indonesian Finance Minister Sri Mulyani Indrawati added that there is no need to cut the value-added tax in Indonesia in a bid to boost people's spending power. Despite slowing household consumption in the first three quarters of 2017, Mulyani is optimistic that the figure will rise above the 5 percent (y/y) level again in the last quarter of 2017.
Suahasil Nazara, Fiscal Policy Head at Indonesia's Finance Ministry, also sees no point in cutting VAT in an attempt to boost purchasing power and household consumption in Southeast Asia's largest economy. Nazara emphasizes that Indonesians' spending power has strengthened even though growth of household consumption slowed. Moreover, he sees another trend namely the shift of conventional to online shopping.