Indonesia's economy remains robust, growing at 5.11% in Q1 2024, driven primarily by household spending, election-related expenditures, and government spending. Despite this solid growth, both domestic and external challenges could impact the economic outlook and the business landscape moving forward.
Inflation of Essential Items:
- Prices of essential items such as rice, sugar, onions, and chili remain high, despite a declining trend compared to May 2024 following the passing of El Nino.
- The potential onset of La Nina could disrupt food production and distribution, potentially prolonging food inflation and reducing purchasing power for discretionary goods.
Decline in Trade Surplus:
- Cumulative exports from January to April 2024 have decreased by 5.12% year-on-year, primarily due to a decline in coal prices, although export volumes have remained stable.
- Meanwhile, total imports have increased slightly year-on-year, which lead to a lower trade surplus and potential Rupiah depreciation.
Changing Consumer Spending Preferences:
- The Mandiri Spending Index (MSI) from CNBC article indicates a significant shift towards electronic goods, with spending rising from 4.7% in May 2023 to 8.7% in May 2024.
- Spending on daily necessities related to grocery items has decreased from 26.1% in March to 24.7% in May 2024. However, on a yearly basis, spending on food and beverages has risen dramatically, with the portion of income allocated to these needs increasing from 16.6% during Ramadan and Eid in 2023 to 26% in May 2024. This suggests that while there has been a recent monthly decline, the overall yearly trend indicates a significant increase in spending on daily necessities.
- The phenomenon of 'mantab' (makan tabungan) is prevalent among lower and middle-income groups, as they dip into their savings to meet consumption needs.
- Lower-income groups have seen a consistent decline in savings since April 2023, while middle-income groups have experienced a decline since October 2023. Higher-income groups, on the other hand, have shown an increase in savings since January 2024.
- Heightened geopolitical tensions, increased trade protectionism, and global fragmentation may raise food and energy prices.
- Specific risks include export bans on rice by Myanmar and India, and tensions in the Middle East affecting crude oil prices, as well as the ongoing conflict between Russia and Ukraine impacting fertilizer and wheat supplies.
?Uncertainty Around Interest Rate Cuts:
- The Federal Reserve's lower expectations for interest rate cuts in 2024 due to persistent inflation (above the 2% target), slower economic growth, and considering the unemployment rates in the US.
- This situation might compel Bank Indonesia to align its BI-7DRRR rates with Fed actions, impacting exchange rate stability and inflation control.
While Indonesia's economy shows resilience with steady growth, businesses and policymakers must remain vigilant to both domestic and external challenges. The shifting consumer spending patterns, with lower and middle-income groups focusing on essential needs and higher-income groups increasing their savings, indicate potential risks and opportunities for different business and industries.
I'm delving into this with keen interest in Indonesia's macroeconomic context, aligning with my professional interests. However, it's important to note that my perspective may be limited. Feel free to discuss and expand on these insights :)
