Retail sales in Indonesia fell 17.1% year-on-year in June, marking a slight improvement when compared with an even greater contraction recorded in May (20.6% yoy), according to a recent Bank Indonesia (BI) survey.

The economy is starting to recover after three months of partial lockdown to curb the coronavirus spread with the government lifting large-scale social restrictions (PSBB) in early June to rescue the virus-battered economy.

Compared to the preceding month, June saw improvements in the purchase of vehicle fuels, food, beverages and tobacco, as well as information services, among other categories, according to the survey.

“The improved retail sales performance was driven by reopening of retail stores during the shift from the PSBB [and to the adoption of] new habits,” said the central bank. “The retail sales performance is expected to improve further in July despite still being in a contraction phase.”

The central bank estimates that sales in July were down 12.3% yoy, which would be a further easing in the severity of the contraction, thanks to higher sales of food, beverage and tobacco as well as household equipment.

The recovery of retail sales can’t come soon enough for small businesses: a survey conducted by the Demographic Institute of the University of Indonesia (UI) in collaboration with ride-hailing firm Gojek, found 77% of “social sellers” – entrepreneurs who use social media and other online platforms to market their products to their consumers – expect their revenue to remain under pressure for the next three months despite high hopes of recovery in the long run. And 85% of micro, small and medium enterprises (MSMEs) saw sales decline between March and June, the survey data show, with 44% reporting a drop of more than half.

“The retail sales performance hit rock bottom in May, showing early signs of recovery in consumption [in June], albeit at a very slow pace,” Mirae Asset Sekuritas Indonesia economist Anthony Kevin told The Jakarta Post. “We continue to expect a U-shaped economic recovery.”

According to a McKinsey survey conducted in June, about 40% of Indonesian consumers are optimistic about a quick economic rebound, a sentiment that has remained stable since May. Although consumers feel slightly less impact on their livelihoods, they remain cautious about their purchasing by becoming more mindful of how they spend their money (67%), looking for ways to save money (59%), and trading down (56%).

The strong shift to purchasing via online channels is expected to prevail even once COVID-19 subsides, with close to 60% of consumers having tried a new digital shopping method. Most Indonesians are waiting for milestones beyond the release of government restrictions, before engaging regularly in out-of-home activities.

In a bid to revive consumer spending and prevent Southeast Asia’s largest economy from sliding into a recession, Indonesia is accelerating disbursement of some US$50 billion in fiscal stimulus. The government will pay 28.8 trillion rupiah (US$1.96 billion) to civil servants and state pensioners as a 13th month salary, said Finance Minister Sri Mulyani Indrawati. 

The bonus, along with 37.7 trillion rupiah (US$2.56 billion) as cash incentives to almost 16 million formal workers previously announced, is expected to boost purchasing power and stimulate the economy. 

The reopening of limited travel links with neighbouring countries – from Monday essential business trips are permitted between Indonesia and South Korea – is also expected to boost economic activity.


Sourced from The Jakarta Post, Bloomberg Quinn, McKinsey, Nikkei Asia Review