DBS Survey: 7 consumption trend predictions amidst the threat of recession in 2023
Indonesia, 22 Dec 2022 - There are several more days to go before we conclude 2022 and welcome 2023 and the challenges it brings, including a recession, which will affect the prospects of the global economy, including Indonesia.
In view of the challenging outlook DBS Group Research examined changes in consumer spending behaviour in a study entitled “Indonesia Consumption Basket” involving more than 700 Indonesian respondents from different income classes in November 2022. The research focused on how inflation and the threat of recession would change their spending and consumption patterns. Check out the seven highlights from the research below!
1. Inflation is currently the biggest concern and consumers are well aware of it
The survey results revealed that most people consider the pandemic almost over and inflation to be the next challenge, with 98% of respondents feeling the bite of rising prices. 55% of respondents blame inflation on two main factors, namely rising fuel prices and the geopolitical impacts of the conflict between Ukraine and Russia. People also cite several other reasons behind inflation, namely supply chain disruptions due to COVID-19 (19% of respondents) and the Fed's interest rate hike (16% of respondents).
2. Price increases were more than Indonesia’s inflation statistics and more obvious in groceries and fuel categories
In November 2022, inflation rate was 5.42%. In fact, DBS Group Research found that 54% of respondents feel their spending exceeds Indonesia's inflation statistics, rising above 10% or more. Consumers cite fuel and groceries as the two components with the largest increase mainly because they are daily necessities.
3.
Inflation is expected to linger and there are indications of rapid changes in consumption patterns
Consumers expect the trend of rising inflation to linger. A higher percentage of respondents (89%) expect the trend to continue in the next six months and beyond. This means consumers expect inflation to remain high at least until 1H23 or, in a worst-case scenario, through 2024.
The research also found that most people will change their consumption patterns relatively quickly to adapt to inflation. 62% of respondents indicate that they will change their spending behaviour within three to six months because they expect a long-lasting period of high inflation.
4. Low and middle-income groups will alter their spending patterns faster than middle- and upper-income groups
71% of respondents from the low to middle-income groups state that they will quickly adjust their spending behaviour if inflation and prices remain high within the next three to six months. Meanwhile, 40% of respondents from the middle and upper-income groups will not immediately change their consumption patterns in the midst of inflation. 56% of respondents from the middle to upper-income groups will adjust their lifestyle in the next three to six months, while 7% of respondents will not change their consumption patterns at all.
5. Consumers – especially those in the low and middle-income brackets– are taking a defensive stance to deal with the impacts of inflation and rising prices
People take the
“
save more, spend less
”
approach to deal with the situation while seeking cheaper alternatives to expensive goods or boosting their income. Half of the respondents will take the “save more, spend less” approach while the rest will switch to cheaper goods (19%), invest in investments that offer higher returns (20%), and seek higher income and additional earnings (10%).
In addition, nearly half of people in the middle and upper-income brackets will seek higher income to combat inflation. They invest in investments with potential higher returns (30%), seek higher income and extra earnings (15%), while the rest will do nothing regardless of inflation (2%). DBS Group Research sees that middle and upper-income consumers have larger disposable income and greater flexibility to invest to combat inflation so they don't have to switch to a simpler lifestyle. On the other hand, the middle and low-income groups have limited disposable income so they need to save more and make adjustments to their spending.
6. As consumers change their spending habit, essential expenses (groceries, fuel), not surprisingly, remain a top priority while discretionary spending (recreation, dining out, clothing) ranks at the bottom.
Essential expenses such as fuel and groceries remain a top priority for consumers regardless of the fact that the two necessities recorded the biggest price increase, followed by other household expenses such as rent, installment payments, and home and personal care products. The trend is similar across all income classes with the middle and upper-income groups also prioritising investments compared to other income classes. Discretionary spending, such as recreation, shopping and eating out, is at the bottom of the priority list.
7.
Consumers tend to buy cheaper alternatives to daily necessities (groceries, home and personal care products) while reducing discretionary spending (dining out, recreation, clothing)
DBS Group Research found that respondents have a tendency to use cheaper alternatives to goods rather than cutting back on basic needs (groceries as well as home and personal care products). This also applies to household expenses as well as fuel or transportation costs. For non-essential needs (eating out, recreation, and clothing), consumers have no issues about reducing the intensity so that it appears that they choose quality over quantity.
Quite the contrary, the middle and upper-income groups choose to cut back on the frequency of using basic necessities rather than looking for cheaper alternatives. Therefore, DBS Group Research concludes that these income classes have an established standard of living and will not compromise quality.
To read the complete report in PDF format, click
here
.
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