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Today's Headlines Household Consumption
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.
For the first time in several years, Indonesia Investments decided that it had to adjust its outlook for Indonesia’s economic growth. Since 2016, Indonesia’s modestly accelerating economic growth rate had been fully in line with our estimates.
In line with our forecast, Indonesia’s economic growth continued to accelerate in 2018. Based on data from Statistics Indonesia (Badan Pusat Statistik, or BPS), which were released in early February 2019, the country’s gross domestic product (GDP) expanded 5.17 percent year-on-year (y/y) in full-year 2018, up from a growth rate of 5.07 percent in the preceding year.
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.
Every quarter we are very eager to learn the latest update of the Kontan CEO Confidence Index (KCCI). The KCCI is an index compiled by Kontan, an Indonesian newspaper and magazine that focuses on business and investment (and is part of the Kompas Gramedia Group). Each quarter, 30 chief executive officers (CEOs) of big Indonesian companies – covering a range of sectors - are surveyed. Their feedback is important because these CEOs are decision-makers in influential companies.
Indonesia's Statistics Agency (BPS) announced that gross domestic product (GDP) of Indonesia expanded 5.06 percent year-on-year (y/y) in the first quarter of 2018. This figure is in line with our expectations. Over the past two years it had already become clear that the acceleration of economic growth in Indonesia goes at a very slow pace, a trend that can primarily be attributed to subdued household consumption.
One of Indonesia's biggest companies in terms of market capitalization on the Indonesia Stock Exchange, Unilever Indonesia, reported a decline in net profit and sales in the first quarter of 2018. The company's latest corporate earnings report gives rise to concerns that household consumption is yet to show a rebound in Indonesia.
Stakeholders in Indonesia's food and beverage industry expect to see a 15 percent increase in sales during the Ramadan month and Idul Fitri celebrations (compared to normal conditions). Although the Ramadan is Muslims' fasting month, it is also a period when household consumption tends to rise sharply in Indonesia, specifically spending on food and drinks as well as clothes, bags and shoes grows significantly.
Unilever Indonesia, one of Indonesia's biggest consumer goods companies, recorded IDR 7 trillion (approx. USD $515 million) in net profit over full-year 2017, up 9.6 percent year-on-year (y/y) from net profit in the preceding year. These figures are unaudited. The audited FY-2017 corporate earnings are expected to be released toward the end of February 2018.
The emergence of a money flow in the context of the government's Family Hope Program (in Indonesian: Program Keluarga Harapan, or PKH), a cash transfer program for the nation's poorest households, is hoped to boost household consumption in Indonesia in 2018. In February 2018 the first phase of this year's PKH program will be conducted.
Latest Columns Household Consumption
The Indonesian economy, from the expenditure side, is highly dominated by domestic demand. From Q1-2010 to Q1-2015, the average role of domestic demand reached 99.5 percent, with the lowest level at 96.8 percent. The positive side of this situation is that the Indonesian economy is relatively resilient to external factors. History shows that despite the US subprime mortgage crisis and financial crisis in Europe, economic growth in Indonesia remained relatively high and consistent compared to other countries.
In his presentation at the Indonesia Investment Summit 2015, organized in Jakarta on 15-16 January, Standard Chartered Bank Senior Economist Fauzi Ichsan said that despite the challenges amid global uncertain times, there remains plenty room and opportunity for Indonesia to grow robustly on the long-term. In fact, by 2030 Ichsan believes that Indonesia will be among the world's top ten countries in terms of largest economies. For investors it is important to understand the challenges and key pillars of economic growth.
According to data from ANZ-Roy Morgan, Indonesian consumer confidence increased 3.7 points to hit a record high at 161.4 points in August. Compared to the same month last year, Indonesian consumer confidence has grown by 11.9 points. Improved confidence in August is primarily due to increased confidence in personal finances and consumers’ expectation to buy household appliances. Indonesians are also more optimistic about the condition of the domestic economy in the five years ahead due to the arrival of president-elect Joko Widodo.
Indonesia’s gross domestic product (GDP) growth in the first half of 2014 reached 5.17 percent (year-on-year), thus continuing the slowing growth trend that has been recorded by the country since 2011. Forecasts for GDP growth in the second half of 2014 indicate a slight improvement (to the range of 5.2 to 5.3 percent year-on-year) supported by strong household consumption, increased government spending and further growth of the trade and services sector. However, in recent quarters the official GDP figure has been lower than most forecasts.
Statistics Indonesia (BPS) announced on Tuesday (05/08) that Indonesia’s economy grew 5.12 percent in the second quarter of 2014 from the same quarter last year. This means that gross domestic product (GDP) growth of Indonesia has continued the slowing trend it has been experiencing since 2011. The 5.12 percentage point GDP growth in Q2-2014 is the slowest growth pace that has been recorded by Southeast Asia’s largest economy since the fourth quarter of 2009. What explains this slowing economic growth of Indonesia?
On Thursday 12 June 2014 it was decided at the central bank’s Board of Governors’ Meeting to maintain the country’s benchmark interest rate (BI rate) at 7.50 percent, with the Lending Facility rate and Deposit Facility rate held at 7.50 percent and 5.75 percent, respectively. This decision is consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce Indonesia’s current account deficit to a more sustainable level.
Statistics Indonesia (BPS) announced on Monday (05/05) that the economy of Indonesia - Southeast Asia's largest economy - grew at a much slower pace in the first quarter of 2014 than had been expected by analysts. Gross domestic product growth slowed to 5.21 percent (year-on-year) in Q1-2014, significantly down from the 6.03 percentage growth (yoy) that was recorded in Q1-2013. Gross domestic fixed capital formation (GFCF) slowed to 5.13 percent from 5.9 percent in the same period last year.
The central bank of Indonesia (Bank Indonesia) decided to maintain its benchmark interest rate (BI rate) at 7.50 percent at the Board of Governors’ Meeting held on Tuesday 8 April 2014. The Lending Facility rate and Deposit Facility rate were held at 7.50 percent and 5.75 percent respectively. This policy is consistent with ongoing efforts to steer inflation back towards its target corridor of 4.5±1 percent in 2014 and 4.0±1 percent in 2015, as well as to reduce the current account deficit to a more sustainable level.
The high level of consumption in Indonesia is remarkable. In fact, household consumption in Indonesia is an important engine of economic expansion in Southeast Asia’s largest economy as it accounts for about 55 percent of economic growth. One of the most popular consumption products are gadgets, in particular mobile gadgets. Just take a look in urban environments in Indonesia; everywhere people are holding, playing with, and communicating through some sort of mobile technological device.
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.
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