Fri, 15 Dec 2000

Consumers, producers less upbeat on economy

JAKARTA (JP): A survey conducted by Bank Indonesia reveals that consumers and manufacturers are less optimistic about the future of the economy, which could indicate that economic performance in 2001 will weaken.

In its consumer confidence survey report in November, Bank Indonesia said there would be a decline in consumer optimism in the economy for the next 6 to 12 months.

The central bank said consumer pessimism was linked to increasing unemployment, a lack of public confidence in the government's economic recovery program, the weakening of the exchange rate of the rupiah to the U.S. dollar and an increasing interest rate.

The survey said most respondents were not planning to purchase consumer goods, particularly big items, such as cars, homes and household appliances.

The survey added that consumers expected prices to be higher over the next 6 to 12 months.

"Consumers in general are less optimistic," said Hari Utomo of the economic and monetary statistics division of Bank Indonesia, which oversees the survey.

Manufacturers are not as pessimistic as consumers. "But it is the nature of businessmen to be more optimistic about things in general," Hari said.

According to the Bank Indonesia third quarter business sentiment survey, business activity increased in the third quarter of this year compared to the previous quarter.

The survey said that seven business sectors saw greater activity during the period, particularly in the financial, service and rental, trade, hotel and restaurant, and manufacturing sectors. Only the agricultural sector saw a drop in activity.

The survey also said business activity would continue to grow in the fourth quarter of this year, particularly due to increasing consumer demand in relation to year-end festivities.

The leading business sectors in the fourth quarter will be finance, service and rental and manufacturing.

But the survey revealed that businesses were less optimistic about making new investments.

It pointed out that the number of respondents making new investments during the third quarter of this year was lower than in the previous quarter.


Noted economist Sri Mulyani said the results of the Bank Indonesia survey confirmed her projection that economic performance in 2001 would decline.

Sri said that from the demand side, household consumption, which contributed about 70 percent to gross domestic product (GDP) so far, would drop as indicated by the consumer confidence index.

She said consumers were less confident now because of inflationary pressure.

She said strong household spending this year was partly due to consumers' stronger confidence from a very low inflation level in 1999.

Bank Indonesia initially projected inflation this year to be in the 5 percent to 7 percent range, but current year-on-year inflation was already about 9 percent.

The weakening of the rupiah has been partly blamed for the inflationary pressure. The exchange rate target of the rupiah for this year was initially set at Rp 7,000 to the U.S. dollar, but it has been hovering at an average of about Rp 8,500 to the dollar.

Sri said from the supply side, businesses tended to slow in making new investments because of an expected higher interest rate due to inflationary pressure and the weakening of the rupiah.

"So both the demand side and the supply side will contribute to slower economic growth next year," she said.

Sri said the government had failed to take advantage of the momentum provided by stronger economic growth this year, which is estimated at 5 percent compared to the government's initial forecast of 3.8 percent.

"If the government was in order, this (the strong economic growth this year) should be a strong asset to revive confidence," she said.

Bank Indonesia also released its third quarter banking survey, which revealed that 95 percent of the respondents claimed they had channeled new lending to the real sector.

The survey said medium to large-sized banks had channeled a greater volume of new lending in the third quarter compared to the second quarter.

The survey said new lending would continue to grow, but the larger banks would see slower growth.

The government has just completed its major bank recapitalization program. But many have said the banks were reluctant to channel new lending although the government recapitalized them. (rei)