Indonesia Tips Toward Recession as Consumer Spending Dwindles
Indonesia Tips Toward Recession as Consumer Spending Dwindles
(Bloomberg) -- Jakarta’s return to stricter social-distancing measures has dashed hopes that consumption will recover soon, tipping Indonesia’s economy closer to a recession this quarter.
The capital reimposed tighter curbs at a time when people’s shopping habits still hadn’t bounced to back to pre-pandemic levels, while surveys show wealthier Indonesians are pessimistic as the country reports record numbers of coronavirus cases every few days.
“It’s inevitable that the Indonesian middle class, still faced with high economic uncertainty, would continue to refrain from buying and to opt for saving,” said Satria Sambijantoro, an economist at PT Bahana Sekuritas in Jakarta. As long as Covid-19 cases continue to climb, 2020 will remain “the year of spending cautiously,” he said.
The government has already slashed its 2020 growth forecast and now expects a contraction of 0.6% to 1.7% for the full year, with the economy likely to shrink in the third and fourth quarters, Finance Minister Sri Mulyani Indrawati said Tuesday.
The hit to household consumption, which contributes about 60% of gross domestic product, could worsen the downturn in Southeast Asia’s largest economy. The GDP shrank 5.32% in the March-June period from a year ago, with analysts expecting a 2% decline this quarter, according to the median estimate in a Bloomberg survey.
Consumer confidence declined among Indonesians who spend more than 5 million rupiah ($339) a month, according to a central bank survey in August. Retail-sales expectations for the next three and six months eased in July, compared to the prior month.
Out of Breath
Retailers are already dipping into capital reserves to stay afloat, said Roy Mandey, chairman of the Indonesian Retailers Association. The question is how long the pandemic will cast a pall over spending, with retailers worrying they’ll run out of breath before demand picks up, he added.
“If the pressure continues, it’s just a matter of time that one by one modern retailers will stop operating, especially local retailers with smaller business scale,” Mandey said.
PT Mitra Adiperkasa, which operates Starbucks Corp. and Sephora outlets in Indonesia, is set to realize just 30% of its 1.2 trillion rupiah capital-spending plan this year, after reporting a record net loss in the second quarter. Its peers PT Matahari Department Store and PT Ramayana Lestari Sentosa also swung to losses as people steer clear of shopping malls.
Visits to retail and recreational spaces were still 10% lower than before the pandemic began, according to a mobility report by Google as of Sept. 11.
Battered State
The renewal of large-scale social restrictions “certainly adds to the downturn,” especially in Jakarta’s business districts as people work from home, said Alphonzus Widjaja, vice chairman of the Indonesian Shopping Center Association.
Retail’s plight means the V-shaped recovery the markets have priced in is unlikely to occur, said Bahana’s Sambijantoro. Instead, Indonesia can expect a U- or L-shaped recovery as household consumption takes time to rebound, he said.
“We had our reserves during the first restriction period,” Widjaja said. “But now we’ve entered another restriction already in a battered state.”
©2020 Bloomberg L.P.