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Mirae economist warns of declining purchasing power despite Indonesia's economic growth

Jakarta Globe - May 8, 2024

Vinnilya, Jakarta – Despite Indonesia's robust economic growth, Chief Economist at Mirae Asset Sekuritas, Rully Arya Wisnubroto, cautioned the government about the declining trend in consumer purchasing power in the last two quarters.

"Consumer purchasing power has seen a slight decrease, with household consumption growth staying below 5 percent year on year for two consecutive quarters," Rully Arya Wisnubroto told Beritasatu.com on Tuesday.

Household consumption was the main contributor to gross domestic product (GDP) with a growth of 4.91 percent in the first quarter of 2024, compared to the same period last year, contributing to 54.93 percent of GDP.

Indonesia's economic growth in the first quarter of 2024 reached 5.11 percent year on year (yoy), slightly below the Finance Ministry's projection of around 5.17 percent.

Rully attributed the decline in purchasing power to several factors, including high interest rates, volatile food prices, and imported inflation during periods of rupiah depreciation.

According to data from the Central Statistics Agency, inflation for April 2024 reached 0.25 percent monthly, with a year-on-year rate of 3 percent and a calendar year inflation of 1.19 percent.

He mentioned that this decline in purchasing power affected various socio-economic groups, from the lower to the upper-middle class. While the government has provided substantial social assistance to the lower-income group, the middle class has been somewhat overlooked.

"To address this, the government needs to focus on the middle class, possibly by improving infrastructure and facilities such as public transportation to support economic activity among the middle class," he suggested.

As a result of declining purchasing power and consumer demand, footwear company Sepatu Bata announced last week the closure of its factory in Purwakarta after 30 years of operation. As a result, 233 employees lost their jobs.

President Joko "Jokowi" Widodo said the closure of the factory does not reflect Indonesia's overall economic condition.

Finance Minister Sri Mulyani attributed the economic growth to strong domestic demand and prudent state budget management.

She highlighted that as Indonesia's economy grows, the unemployment rate decreases, even reaching pre-pandemic levels. In February 2024, unemployment decreased by 9.89 percent compared to the same period last year.

Sri Mulyani also pointed out the global risks Indonesia faces, such as uncertain policies by The Fed, geopolitical tensions, and disruptions in the global supply chain.

In response, the government will closely monitor potential impacts from global dynamics. Utilizing the state budget as a shock absorber, Indonesia aims to maintain people's purchasing power and sustain economic growth momentum.

Source: https://jakartaglobe.id/business/mirae-economist-warns-of-declining-purchasing-power-despite-indonesias-economic-growt