MAMI says domestic consumption faces headwinds in Q2 2026

Jakarta (ANTARA) - Head of Investment Specialist at Manulife Aset Manajemen Indonesia (MAMI) Freddy Tedja assesses that domestic consumption is beginning to face greater pressure in the second quarter of 2026 amid rising interest rates, inflation, a weakening rupiah, and increasingly tight liquidity. In the first quarter of 2026, domestic economic activity was relatively resilient, supported by seasonal Hari Raya factors, substantial government spending, investment, and the scaling up of various social programmes. “However, for the second quarter and the overall year 2026, challenges and constraints are increasing in line with the BI Rate hike, rising inflation, rupiah depreciation, and tighter liquidity,” Freddy said in a statement in Jakarta on Wednesday. According to him, the pressure on consumption is reflected in several recent economic indicators. Year-to-date inflation as of the end of June 2026 reached 1.79 percent, higher than the 1.38 percent recorded in the same period last year. This price increase is seen as impacting retail sales, which contracted for two consecutive months, falling 3.7 percent in April and 3.2 percent in May. The decline in retail sales has subsequently put pressure on manufacturing sector activity. This is evident from Indonesia’s Manufacturing Purchasing Managers’ Index (PMI), which fell to 46.9 in June 2026, its lowest level since June 2025. Furthermore, Freddy noted that the Consumer Confidence Index (IKK) also shows a gradual downward trend across various components, from income expectations and job availability to the business climate outlook. On the other hand, the government has responded to the weakening purchasing power by disbursing an economic stimulus package worth Rp26.34 trillion for the second half of 2026, covering food assistance, transport incentives, and internship and vocational programmes. “This stimulus can help maintain purchasing power, but we must wait to see its effectiveness, given the increasingly limited fiscal space which restricts the ability to provide further, larger-scale stimulus,” Freddy said. From a global perspective, Freddy observed that the most reassuring development for the market is the increased hope for geopolitical normalisation following the start of peace negotiations between the United States (US) and Iran in June. In the memorandum of understanding (MoU) between the two countries, the normalisation of traffic in the Strait of Hormuz is one of the main priorities. This step is considered crucial because around 20 percent of the world’s daily oil needs pass through the strait. According to Freddy, if energy supplies return to normal, global inflationary pressures could ease, opening up opportunities for monetary policy loosening in various countries, including the US. “But once again, the market must wait for the finalisation of the agreement, which is targeted for completion within 60 days of the MoU being signed, with the possibility of an extension. Of course, we are hoping for a good and sustainable outcome,” he said.