Update COVID-19 in Indonesia: 365,240 confirmed infections, 12,617 deaths (19 October 2020)
Indonesia Investments Report - October 2020 Edition: Introduction Omnibus Law
19 October 2020 (closed)
USD/IDR (14,658) -71.01 -0.48%
EUR/IDR (17,357) +24.17 +0.14%
Jakarta Composite Index (5,126.33) +22.92 +0.45%
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Today's Headlines Retail Sales
The risky decision of Indonesia’s central government and regional governments to (gradually) ease the various self-imposed social and business restrictions (that had been imposed in April 2020) has caused changes in economic activity in Indonesia, particularly in consumer behavior, starting from June 2020.
A survey of Indonesia's central bank (Bank Indonesia) shows that retail sales have grown strongly in December 2018. The growth pace was recorded at 7.7 percent year-on-year (y/y) in the last month of 2018, strengthening from an annual growth rate of 3.4 percent (y/y) in the preceding month.
The extended Eid al-Fitr holiday is now over and everyone should be back at work per Monday (25/06). Indonesia's capital city of Jakarta is also, again, plagued by heavy traffic congestion. In fact, traffic congestion should be slightly worse than before the holiday because it is estimated that more than 72,000 newcomers settled in Jakarta after this year's Eid al-Fitr holiday.
Approaching the end of the year, retail companies in Indonesia are now starting to prepare for the upcoming Christmas and New Year celebrations in late-December. Indonesia has two traditional peaks of rising consumer demand (hence rising inflationary pressures): (1) Ramadan/Idul Fitri festivities and (2) Christmas/New Year celebrations.
Indonesia's retail sales declined in July 2017 in line with the return to normal consumption patterns after the Ramadan and Idul Fitri celebrations ended. This is reflected in Bank Indonesia's retail sales index that showed a 3.3 percent decline year-on-year (y/y), after a 6.3 percent (y/y) increase in the preceding month. The decline in Indonesia's retail sales occurred in both food and non-food groups.
Bleak retail sales in Indonesia are expected to continue in the second half of 2017 amid weak consumer purchasing power. Yongky Susilo, Executive Director at Retailer Services Nielsen Indonesia, expects the nation's retail sales growth to be be 6 percent year-on-year (y/y), tops. Normally, the growth pace of retail sales in Southeast Asia's largest economy averages 10 - 11 percent (y/y).
Sales of electronics in Indonesia in the second quarter of 2017 are expected to have remained stuck at the same level as in the first quarter amid bleak demand. Ali Soebroto, Chairman of the Indonesian Electronics Industries Association (Gabel), said domestic sales growth of electronics has not risen significantly in Q2-2017 and, in fact, is far from the target. Soebroto attributed these weak electronic sales to people's preference to purchase goods that are related to the fasting month (Ramadan) such as food products or clothes.
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.
In 2016 Indonesia was the third-largest Asian country in terms of modern retail sales growth after India and China. Last year Indonesia's modern retail sales expanded 10 percent to IDR 200 trillion (approx. USD $15 billion). Roy Nicholas Mandey, Chairman of the Indonesian Retailers Association (Aprindo), said Indonesia remains an attractive country for retailers due to the enormous size of the population. Moreover, due to economic growth this population constitutes a strengthening consumer force. Lastly, Indonesians are known as people who are eager to try and buy new products.
Both Indonesia's processed food and beverage industry and modern retail sectors are considered to have great potential for the next three years due to Indonesia's huge domestic market, expanding middle class as well as sharply rising Internet and smartphone penetration (giving rise to a rapidly developing e-commerce industry). Meanwhile, accelerated economic growth and low inflation are the right recipe to boost people's purchasing power, hence boosting sales.
Latest Columns Retail Sales
There are signs that household consumption in Indonesia is rebounding ahead of this year's Idul Fitri holiday. This would be a great boost for Indonesia's overall economic growth as private consumption accounts for around 57 percent of the nation's total economic growth. One of the reasons why Indonesia's gross domestic product (GDP) growth has been stuck around the 5 percent (y/y) mark in recent years is subdued household consumption (which has fallen slightly below the 5 percent y/y mark).
Over the past couple of months there have been many reports about Indonesia's weak consumer purchasing power. For example, the Indonesian Retailers Association (Aprindo) said it detected rather weak retail sales during this year's Idul Fitri period (the week-long holiday that marks the end of the Islamic fasting month). Whereas these sales rose 16.3 percent during last year's edition of Idul Fitri, they rose only by an estimated 5-6 percent this year.
Indonesian retail businesses are optimistic that their performance will improve in 2016 on the back of rising purchasing power amid the government's decision to cut energy tariffs (fuel and electricity) and its plan to raise non-taxable income by 50 percent. These moves mean that Indonesian consumers (particularly in the lower middle class segment) should have more money to spend. Tutum Rahanta, Deputy Chairman of the Indonesian Retailers Association (Aprindo), says retail business can grow by 12 - 15 percent (y/y) in 2016, considerably higher than the 7 - 8 percent (y/y) growth pace realized last year.
Matahari Department Store is a leading modern retail business in Indonesia offering a wide variety of products such as accessories, home-ware and fashion. In 2016 the company, which has been listed on the Indonesia Stock Exchange since 1989, plans to open between six and eight new stores as part of its expansion plans. This is a more conservative plan compared to 2015 when Matahari Department Store opened 11 new stores. However, the lower amount of new stores may in fact manage to enhance productivity at the existing stores and curtail operational costs.
Just as unexpected as yesterday when the benchmark stock index of Indonesia (known as Jakarta Composite Index or IHSG) fell 1.06 percent amid positive domestic and international circumstances, the IHSG made a surprise rebound on Tuesday’s trading day. Yesterday’s fall was exorbitant and unfounded and today market participants made up for that performance by accumulating stocks that had lost value. As a result the IHSG gained 1.25 percent to 4,946.09 points on Tuesday (10/06).
Indonesian retail sales surged 14 percent in November 2013 from one year earlier (the highest growth rate since July 2013). On a month-to-month basis, Indonesia's retail sales increased 1.5 percent from October 2013. These findings were the result of a survey conducted by the central bank of Indonesia (Bank Indonesia), which surveyed 650 retailers in 10 Indonesian cities. The bank's survey also indicated that Indonesian retailers may increase prices of their products in 2014 in order to compensate for the depreciating rupiah exchange rate.
Retail sales in May 2013 rose 1.5 percent (month to month) or 8.6 percent (year on year) in Indonesia according to a publication of Indonesia's central bank (Bank Indonesia) released on Tuesday evening (16/07). The report made a positive impact on today's trading day as stocks in Indonesia's consumer goods sector rose 2.5 percent. Indonesia's main stock index (IHSG) gained 0.75 percent to end at the level of 4,679.00 points. Foreigner investors are still mostly avoiding the Indonesian stock market, but did record a net purchase today.
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