World Economy

Improving Incomes Inspiring Indonesians to Spend More

Improving Incomes Inspiring Indonesians to Spend MoreImproving Incomes Inspiring Indonesians to Spend More

Indonesia’s urban consumers will see better days in 2018 after nearly two years of weak income performance. It is expected that higher household incomes will lead to faster consumption growth, although this will depend on how the rupiah is affected by monetary tightening in developed economies.

FT Confidential Research’s latest survey of 1,000 Indonesians in 25 cities revealed that consumers’ perception of their incomes improved dramatically in the third quarter, suggesting the gradual export recovery throughout 2017 has trickled down to households. So far this has failed to boost consumers’ willingness to spend on non-essential items, Nikkei reported.

This has been on a downward trajectory since the first quarter of 2016. Household consumption grew by only 5.06% year-on-year in the third quarter, lower than the government’s and central bank’s expectations of 5.2% growth.

The disappointing data were followed by a run of bad news from fashion retailers. In October, British department store brand Debenhams announced it would cease operations in Indonesia. Matahari and Ramayana, retailers that cater to lower and middle income consumers, have closed four and eight outlets respectively this year.

Retail executives suggest department stores have been hit by changing consumer behavior, with shoppers switching to specialty stores, as evidenced by the expansion over the past two years of brands such as H&M and Uniqlo.

Online marketplaces are another threat, particularly Bukalapak, Lazada and Tokopedia. The Indonesian e-Commerce Association expects the combined value of e-commerce transactions to grow 30-50% this year from $5.6 billion in 2016.

Despite lower consumption growth than expected and department store closures, Indonesia’s retail market remains buoyant. The Indonesian Retailers Association expects the total sales value of modern retailers (as opposed to traditional markets) to reach Rp215 trillion ($15.9 billion) in 2017, up from Rp197 trillion last year.

Government tax collection data confirm the resilience of the retail sector. Value added tax intake in the first 10 months of 2017 rose 14.1% year-on-year, a strong improvement on 2015 and 2016.

Surveys by Bank Indonesia, the central bank, also show retail sales for the first 10 months of the year improved slightly compared with 2016 and were significantly better than 2015, as household incomes benefited from higher export revenue. As of October, the total value of exports grew by 17.6% year-on-year to $138.5 billion, rising significantly faster than in the previous five years.

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