Indonesia's manufacturing sector is expanding at the highest pace in nine months in May since it expects higher demand for the reminder of the year. (Antara Photo/Raisan Al Farisi)

Will Indonesians Buy More After Election Clouds Clear? Manufacturers Think So


JUNE 03, 2019

Jakarta. Key benchmark surveys on Indonesia’s consumers and manufacturing sector have pointed to robust confidence among local buyers and businesses, which indicates higher demand in the economy in the near future. 

Research firm Nielsen said on Monday that Indonesia was the fourth most optimistic country globally in the first quarter this year thanks to a bright job prospect and perceived economic stability. 

On the supply side, research firm IHS Markit said in a separate statement that Indonesia's manufacturing sector is expanding at the highest pace in nine months in May as they anticipate higher demand for the reminder of this year. 

The largest economy in Southeast Asia grew at a disappointing pace in the first quarter this year, expanding at 5.07 percent since last year instead of the 5.2 percent expected by economists. 

Still, many expect an uptick is not too far away. 

"The economy is expected to improve in the second quarter. There should be a clearer picture of the policy direction of the elected government [by then],"  Dian Ayu Yustina, an economist at Bank Danamon Indonesia, said. 

Rating agency Standard and Poor's gave a stamp of approval to Indonesia's positive economic prospect by upgrading the country’s sovereign rating by a notch above investment grade.

On the ground, consumers shared a cautiously optimistic view of the country's economy. 

Nielsen's Indonesian Consumer Confidence Index was relatively stable at 125 in the first quarter of 2019, only a two-point drop from the fourth quarter. A reading above 100 reflects optimism.

Globally the index also experienced a slight decrease from 107 to 106. 

72 percent of Indonesian respondents express optimism regarding their job prospect in the next 12 months, up from 68 percent in the fourth quarter last year.  

83 percent thought the state of their personal finance was positive, up from 79 percent. 

But, just 56 percent think now is a good time to spend on items they want and need, down from 63 percent. 

Agus Nurudin, managing director of Nielsen Indonesia, linked this reduced desire to shop to consumer concerns about the country's political stability.

The Nielsen survey revealed more than a third of respondents were concerned about the political state of the country in the first quarter, compared to just below a fourth in the previous quarter.   

"Going to the elections, consumers became more careful with their spending," Agus said.

Still, manufacturers are willing to bet that buying appetite will return after the elections. 

The Nikkei Indonesia Manufacturing Purchasing Managers' Index rose to 51.6 in May from 50.4 in April, research firm IHS Markit said in a statement. 

It was the highest index reading since August 2018. A reading above 50 reflects overall expansion after combining manufacturing managers' response to questions on output, new orders, employment, inventories and delivery times. 

"Growth in the Indonesian manufacturing sector gathered momentum midway through the second quarter," Bernard Aw, the principal economist at IHS Markit, said in a statement. 

"Output growth accelerated, aided by a renewed expansion in new orders. Firmer demand conditions saw backlogs rise for the first time in five years, suggesting that firms may continue to scale up production in coming months. The sustained upturn also generated greater confidence among Indonesian manufacturers," Aw said. 

Aw said the latest PMI data remain consistent with prediction that the Indonesian economy will expand above 5 percent this year. 

The Finance Ministry 's latest growth forecast was 5.15 percent for this year, while Bank Indonesia, the central bank, put the figure at 5.2 percent. Both are lower than the 5.4 percent target in the 2019 State Budget, as the fickleness of the global economy continues to undermine Indonesia's commodity export performance.