Consumers, producers less upbeat on economy

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.

Decline

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)