'Weakening consumption poses a threat to economic growth'
'Weakening consumption poses a threat to economic growth'
A'an Suryana, The Jakarta Post, Jakarta
Analysts are divided on whether the latest data on a decline
in sales of electronic goods and cigarettes indicates a weakening
of domestic consumption.
Centre for Strategic and International Studies (CSIS)
economist Pande Radja Silalahi said falling sales were a strong
indication that consumption was weakening, which could become a
serious threat to this year's economic growth if the trend
continued.
He said that people were reluctant to spend money on durable
goods because they were pessimistic about the performance of the
economy, particularly in the area of investment and exports.
"Weakening consumer spending reflects popular pessimism over
the country's economic performance," Pande told The Jakarta Post
on Sunday.
"In view of the lackluster performance people then choose to
save their money rather than spend it on durable goods," he
added.
This paper recently quoted data from an association
representing electronics businesses that sales of electronic
goods during the month of July and August had declined by up to
26 percent. Industry experts have said that massive layoffs have
weakened consumer purchasing power, which, in turn, has hit sales
of electronic goods.
Sales of cigarettes have also been on a downward trend, with
full-year sales figures expected to drop by 20 percent from last
year's 206 billion sticks, according to the industry association.
This data has triggered concern that domestic consumption,
which was expected to become the main driver of this year's
economic growth, is waning.
The government has projected this year's growth at 4 percent.
The Asian Development Bank, in its 2002 Outlook Update report,
also highlighted weakening consumption in the country.
According to one estimate, domestic consumption is expected to
contribute around 75 percent of the country's gross domestic
product (GDP).
However, Standard Chartered Bank economist Fauzi Ichsan said
that it was too early to tell whether declining sales in
electronic goods and cigarettes were signs of slowing domestic
consumption.
"We must be careful before jumping to such a conclusion," said
Fauzi.
"If the decline (in sales) occurs for three months
(consecutively), it might be true that the consumer spending is
weakening," he added.
He agreed, however, that weakening domestic consumption could
present a serious threat to the economy.
Meanwhile, Pande urged the government to immediately improve
the domestic investment climate so that companies would start
making new investment, which, in turn, could revive public
confidence in the economy and help push up sales of durable
goods.
"The government must move quickly to address legal
uncertainties here," he said.