Indonesia economy: Prices slump as consumer spending drops

Summary

The textiles market in central Jakarta, Southeast Asia's largest, is facing a significant downturn, with sales plummeting 60% over the last five months despite continuous price cuts. This decline is attributed to five months of deflation, primarily in the food sector, reflecting reduced consumer purchasing power amid rising unemployment. Economists note that over nine million people have fallen from middle-class status, paralleling past economic crises. Professor Mary Pangestu emphasizes the need for fiscal and monetary stimulus to enhance domestic consumption and support small businesses to revive the economy and stabilize the middle class.

Takeaways

• 📉 Sales in central Jakarta's textile market have dropped significantly, with monthly sales down by 60% over the past five months.
• 💰 Indonesia has experienced five consecutive months of deflation, particularly driven by the food and beverage sector.
• 😟 Economists attribute falling prices to weakened consumer purchasing power, resulting from layoffs and a shrinking middle class.
• 🔍 The current economic situation in Indonesia is being compared to past financial crises, although the demand has not collapsed entirely.
• 📊 Official data shows that over 9 million people classified as middle class have become poorer in recent years due to reduced job opportunities.
• 💼 The middle class is crucial for stimulating economic activity in Indonesia, which is a major consumer market.
• 🛍️ Shoppers report cutting back on spending, with many facing difficulties in covering their expenses.
• 🏛️ President Joko Widodo emphasizes the need to control both inflation and deflation for stable prices.
• 💡 Economists suggest that government incentives are necessary to encourage consumer spending and support small to medium-sized enterprises.
• 📈 Monetary and fiscal stimulus measures are needed to boost domestic consumption and alleviate the financial burden on the middle class.

Q & A

What has been the impact of price discounts on sales in central Jakarta's textile market?

Despite continuous discounting by vendors, sales in the market have significantly declined, with monthly sales reported to be about 60% less than before.

What recent economic trend has Indonesia experienced for the past five months?

Indonesia has recorded five consecutive months of deflation, primarily driven by the food and beverage sector.

How have consumer purchasing power and the middle class been affected in Indonesia?

The deflationary trend suggests that consumers are experiencing weaker purchasing power, contributing to a shrinking middle class, with over 9 million people reportedly becoming poorer in recent years.

What role does the middle class play in Indonesia's economy?

Middle-income earners are crucial for stimulating economic activity, as private consumption by the middle class is a key driver of Indonesia's economic growth.

What challenges do shoppers in the market currently face?

Shoppers have reported cutting back on spending due to financial difficulties, with some individuals struggling to cover their expenses.

What is President Joko Widodo's stance on inflation and deflation?

President Joko Widodo emphasizes the need to control both inflation and deflation to ensure stable prices and prevent producers from suffering.

What do economists suggest the government should do to stimulate spending?

Economists recommend that the government provide incentives for consumers to spend and support small and medium-sized businesses.

How does the current situation in Indonesia compare to previous economic crises?

The current deflation is being compared to past crises, such as the Asian financial crisis and the COVID-19 pandemic, though experts believe that the demand weakening now is not as severe as those instances.

What fiscal and monetary measures are suggested to improve domestic demand?

Measures include reducing interest rates to stimulate investment and focusing fiscal spending on encouraging consumption, particularly among lower and middle-class households.

What specific actions could the government take to support small and medium-sized enterprises?

The government could lower the value-added tax, reduce other business costs, and provide easier access to credit for small and medium-sized enterprises to stimulate economic activity.