Consumer Confidence in Indonesia Hits Record High on Jokowi Optimism
According to data from ANZ-Roy Morgan, Indonesian consumer confidence increased 3.7 points to hit a record high at 161.4 points in August. Compared to the same month last year, Indonesian consumer confidence has grown by 11.9 points. Improved confidence in August is primarily due to increased confidence in personal finances and consumers’ expectation to buy household appliances. Indonesians are also more optimistic about the condition of the domestic economy in the five years ahead due to the arrival of president-elect Joko Widodo.
Joko Widodo, popularly known as Jokowi, will assume office on 20 October 2014. ANZ's Asia Pacific Chief Economist Glenn Maguire said that "as Jokowi’s presidency is coming closer, we estimate that consumer confidence in Indonesia will in fact improve further.” However, as Indonesia’s seventh president is expected to raise subsidized fuel prices by IDR 3,000 per liter confidence may somewhat decline in the next couple of months. On the other hand, many Indonesians are aware that the country's fuel subsidies are actually distorting the economy, instead of supporting the poor.
According to the report of ANZ-Roy Morgan, 47 percent of respondents said that the financial situation of their family is better now than a year ago. As many as 72 percent of respondents predict that the financial situation of their families will improve in the next year. Further, about 87 percent of respondents believe that Indonesia’s economic growth will remain solid in the next 12 months, while 94 percent believe that Indonesia’s economic expansion in the next five years will be strong. Regarding people’s attitude for purchasing major household appliances, as much as 65 percent of respondents said that now is a good time to buy.
All these figures above signal high confidence among Indonesian consumers in August. This is most likely related to Jokowi’s victory in July’s presidential election (and August’s confirmation of his win in a Constitutional Court case). However, these record-high levels are expected to decline in the months ahead as the momentum fades. The looming subsidized fuel price hike will ignite accelerated inflation and Indonesia still has to cope with a slowing economy amid a high interest rate environment. The central bank has held its key interest rate (BI rate) at 7.50 percent since November 2013 in an effort to combat higher inflation (triggered by higher subsidized fuel prices implemented in June 2013), to curb the wide current account deficit and offset the impact of monetary tightening in the USA.
The Australia and New Zealand Banking Group Limited (ANZ) is the third largest bank by market capitalization in Australia. Roy Morgan Research is Australia's leading consumer, industry and market Research company. Together, the institutions launched a new index to determine Indonesia’s consumer confidence (on a monthly basis). This index is known as the ANZ-Roy Morgan Consumer Confidence Index.