Pundits expect consumption to be sole driver of growth

Pundits expect consumption to be sole driver of growth

Moch. N. Kurniawan and Novan Iman Santosa, The Jakarta Post, Jakarta

While exports and investment are likely to fall this year,
domestic consumption will once again become the main driver of
economy growth for 2001, experts said on Wednesday.

Raden Pardede, analyst of Danareksa Research Institute said
that based on consumer confidence research, spending would
continue to increase this year.

"Over the next six months, consumers will see that the
economic indicators are good, while prices will go down, salaries
will go up but with no significant rise in employment. This is
why they will keep on spending money," he told The Jakarta Post.

The consumer confidence index has climbed steadily from
February to May, according to the Danareksa survey.

Raden said that consumers would mostly spend money on
motorcycles and cars, electronics and home appliances, home
renovations, and vacations.

But as employment figures will remain relatively stable,
procurement of groceries such as noodles, shampoo, detergent, and
bottled drinking water will remain flat, he added.

"Overall, consumption will become the sole driver of economic
growth this year. We predict the economy will grow by 3.2 percent
this year (similar to last year's growth)," he said.

Domestic consumption accounted for 70 percent of total GDP, he
added.

The country has good economic indicators such as low
inflation, weakening of the greenback against the rupiah,
stronger stock exchange index and lower interest rates during the
first quarter of this year.

The government forecasted a 4 percent growth this year, in the
hope that domestic consumption, which was the prime mover of last
year's economic growth, would continue to increase.

But experts warned that the economy this year might not grow
as much as last year due to weakening exports and investment.
Some also doubted that consumption would increase this year.

The Asian Development Bank (ADB) has said in its annual report
that Indonesia's economic growth would likely slow to 3 percent
this year because of weak consumption and investment.

ADB says spending is unlikely to rise in 2002 as it had
increased faster than overall income during the second half of
last year.

The latest government data shows that exports dipped to
US$22.285 billion between January and May from $24.503 billion in
the same period of last year.

Foreign direct investment (FDI) approvals plunged by 59
percent to $1.67 billion from $3.98 billion posted during the
same period last year.

As for domestic investment, the data showed a drop in
approvals during the January to May period from Rp 12.7 trillion
in 2001 to Rp 9.4 trillion last year.

Senior executive of the Indonesian Electronics Producers
Association (Gabel) Lee Kang-hyun and the Indonesian Automotive
Industry Association (Gaikindo) chairman Bambang Trisulo
supported Raden's view.

Lee said electronic sales this year were expected to surge due
to rising demand and weakening of the greenback against the
rupiah.

"We expect TV sales to reach 2.5 million sets this year from 2
million sets sold in 1997," he said, adding that the increasing
trend would also apply to home appliances such as refrigerators
and washing machines.

"Most customers have decided that now is the time to spend
their money after several years of purchase postponement," Lee
said.

Bambang said that car sales as of May 2002 had increased by 15
percent to 130,500 units compared to the same period in 2001.

Gaikindo expects car sales to reach 320,000 units this year
compared to 300,000 units last year.

Teguh Yunanto, director of consulting firm ACNielsen, which
conducts a bimonthly survey on the retail index, said sales
volume of groceries would likely be flat this year.

This has been the trend in the first half of this year, he
said.

The trend reflects pressure hitting consumer' spending such as
increasing transportation costs and electricity charges, he said.

ACNielsen will soon release its survey on sales volume of
groceries, usually covering 5,000 retailers, ranging from
supermarkets to small shops in urban and rural areas in various
provinces.

The survey contains about 60 categories of fast-moving
consumer goods, such as noodles, milk, cigarettes, shampoo,
detergent and vitamins.