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.