Increased consumption the key to post-pandemic economic recovery | Bahasa

Indonesia, 14 Oct 2020 - The Covid-19 pandemic has impacted all sectors in Indonesia’s economy: hotels suffer from low occupancy rates and shopping malls only see few visitors. According to the Ministry of Manpower, more than 3.5 million people have lost their jobs during the pandemic. The unemployment rate, which dropped to 6.8 million in February 2020, has increased to more than 10 million in just six months.

The pandemic and mobility restriction have not only significantly impacted company businesses but have also changed the way people live, including consumer shopping behaviour, as revealed in a two-week virtual survey conducted by Bank DBS Indonesia in mid-July to explore changes in consumer behaviour during the Covid-19 pandemic.

To adapt to the economic changes brought about by the Covid-19 pandemic, most of the respondents opt to put a brake on spending, at least for the next six months, according to the survey. "They save and invest most of their income instead of spending it to buy goods or to support their activities," according to the findings of Bank DBS Indonesia’s research entitled "Indonesia Consumption Basket" published on 28 August 2020.

There are five key findings of Bank DBS Indonesia’s survey involving more than 500 respondents, most of them from Java, including Jakarta, and the rest from outside Java. The survey showed changes in people's attitudes towards health as they focus more on domestic needs, opt to cook their own meals, and switch to online shopping. Furthermore, traditional grocery shopping has also changed.

"Respondents said they value health and cleanliness, which is reflected in how they perceive the two things," said the survey. About 54 percent of respondents consume more vitamins and supplements.

In terms of food, 69 percent of respondents opt to prepare their own food. About 84 percent of respondents opt to do their activities at home, from working to studying and other activities. Shopping behaviour has also changed, with 66 percent of respondents now shop online after the pandemic compared to only 14 percent before the pandemic. The number of respondents who visit shopping centres has also dropped to 24 percent from 72 percent before the pandemic.

The number of respondents who visit traditional markets to buy daily needs has also plunged. Respondents now use shopping apps to buy staple goods as access to fresh markets is hampered by the Large-scale Social Restrictions (PSBB). In addition, there is a growing awareness of cleanliness.

The number of respondents who use online store applications as the preferred alternative for shopping has increased seven times from three percent before the pandemic to 21 percent. The number of respondents who shop at traditional markets has declined sharply to 30 percent from 52 percent before the pandemic.

The pandemic and the low household consumption resulting from consumers’ tendency to put a brake on spending have prompted DBS to revise down the projection for Indonesia's economic growth for this year to minus one percent from the pre-pandemic estimate of 5.3 percent.

Until the end of August, the government was still hoping it could avoid a recession. Minister of Finance Sri Mulyani Indrawati said the government would use all instruments available to keep the engine of the economy running, especially in the third quarter of 2020.

Due to the Covid-19 pandemic, household consumption dropped by 5.51 percent in the second quarter of 2020. In fact, household consumption is the main contributor to Indonesia's economic growth. As a result, economic growth in the same period decreased to minus 5.32 percent.

To offset the low household consumption, the government seeks to boost state spending. "The strategy to accelerate absorption in the third quarter is the key so that we are able to reduce economic contraction or even hope to avoid a recession," Sri Mulyani said in a meeting with the House of Representatives’ Commission XI to discuss the developments in the National Economic Recovery (PEN) programme at the end of August.

The Ministry of Finance said that government spending in August 2020 increased by 8.8 percent month-to-month to IDR1,362.63 trillion. According to Sri Mulyani, the significant growth in spending was in accordance with President Joko Widodo's instruction.

Adi Budiarso, the Head of the Financial Sector Policy Centre at the Fiscal Policy Agency (BKF), Ministry of Finance, said the government had three main strategies as economic leverage in the third quarter. "When people experience economic pressure, the government’s supply and demand must focus on countercyclical efforts," Adi said in a hearing with House Commission VI at the end of August.

The government's first strategy is to accelerate the realisation of the National Economic Recovery (PEN) programme, including by improving data accuracy and reallocating unused budgets for new programmes. The next step is to increase government consumption that contributes 8.67 percent to the Gross Domestic Product (GDP).

A number of programmes have been implemented, including the disbursement of the 13th salary and phone credit subsidy for state civil apparatus. Lastly, the government seeks to strengthen public consumption by modifying social protection spending by increasing the number of benefits, increasing the frequency of distribution and extending the period of distribution.

However, the government’s expansive fiscal policies have not resolved the economic problems. On Tuesday, 22 September 2020, Sri Mulyani said that according to the Ministry of Finance’s estimate, Indonesia's economic growth in the third quarter would still be low compared to the initial forecast. Although government spending increased quite significantly, Indonesia’s economic growth in the period July-September was expected to be at minus 2.9 percent.

 

“Household consumption, investment, exports and imports are still negative,” said Sri Mulyani. In general, Sri Mulyani predicted this year's economic growth at minus 0.6 percent to minus 1.7 percent.

 

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