Mon, 18 Feb 2002

Retail sector economy prime mover

Dadan Wijaksana, The Jakarta Post, Jakarta

Despite the current strained economic conditions, the retail sector is expected to show resilience and keep growing on the back of strong consumer spending, thus keeping the country's economic wheels moving.

Economists said that the retail sector would be the prime mover of the country's economic growth, pushing other sectors to grow as well.

Citibank economist Anton Gunawan stated a growing retail sector came as no surprise, in line with strong consumer spending, which was the foundation of the country's economic growth last year.

"The retail sector grows due to strong consumption on food- related products, textiles and durable goods, such as electronics and cars," he said over the weekend.

Standard Chartered Bank economist Fauzi Ichsan, also shared the same view: "During the crisis, it has been proven that the retail sector has managed to keep growing, even under these unfavorable conditions."

Both agreed on the importance of a growing retail sector and its contribution to overall growth, as it could generate other sectors to move.

Strong consumer spending allows people to spend money in retailers to fulfill their needs.

When this happens, industries related to food or clothing or electronics, will eventually grow as well, giving a boost to the whole economic activity.

The International Monetary Funds (IMF) stressed last week the importance of the retail sector by calling on the country's banking sector to give a larger portion of lending to retailers.

With a significant drop in exports and investment flow, the country's economy has been relying heavily on strong domestic consumption to prop up its growth.

Last year, Indonesia managed to defy a declining trend of economic growth in the region by posting an impressive 3.5 percent growth, thanks to high consumption expenditure.

The trend is expected to continue this year, with consumer spending surpassing exports and domestic investment, both which have been declining.

Assuming consumption remains robust, the government has targeted the economy to grow by 4 percent this year.

Exports, which used to be the key mover of economic growth, have been badly hit by the global downturn and would remain so until after the first half of the year when the world's major economies like the U.S. and Japan are expected to bounce back.

As for the domestic investment sector, analysts believe it will still be difficult to come by because of the prolonged economic and political uncertainty.

Aside from the retail sector however, the construction and agriculture sector would also play an important part in moving the wheels of the economy.

According to Anton, the construction sector grew significantly last year, especially in housing projects for medium and lower income groups, and would continue to grow this year.

"This sector is also growing, this is good, because it will generate a demand for supporting goods, such as cement, steel and so on," he said.

Meanwhile, Fauzi underscored that the agriculture sector was one of the driving forces of the economy as it remains the dominant sector in terms of absorbing manpower.

"Despite being a traditional sector, some 40 percent to 50 percent of workers in the country are involved in this sector," Fauzi said.