Domestic Purchasing Power: The Engine of Growth
    Category: Column By : Prof. Firmanzah Read : 1483 Date : Wednesday, June 12, 2013 - 08:37:17

    The Indonesian economy grew by 6.02% in the first quarter of 2013, slightly down from 6.29% in the same period last year, according to the state-run statistics agency BPS, despite a global economic slump. By comparison, Malaysia was up 2.5%, Vietnam 4.9% and Singapore 0.6%. The global slowdown has also reduced China's growth rate to just 7.7%.

    The major contributor to Indonesia's economic growth is household consumption, at almost 55% of GDP, while investment accounted for about 33%. Household consumption increased by 5.2% compared to the same period last year, reflecting the strength of Indonesia's domestic consumption. The huge size of the Indonesian domestic market is reflected by, for example, data published by the Indonesian Automotive Industry Association (Gaikindo): 18% growth in car sales in  first quarter of 2013, or 297,785 units sold. Strong domestic purchasing power has managed to sustain the economy despite weak exports.

    The optimism about the Indonesian domestic market is also reflected by the Nielsen Global Survey of Consumer Confidence and Spending Intention covering 58 countries. Indonesia led the global index at 122, up by five rungs from the fourth quarter of last year. This result shows high consumer confidence over the next few months, and intentions to indulge in renovating their homes, taking vacations and enjoying entertainment.

    Another figure showing the rise in purchasing power is found in the domestic aviation industry. In 2012, the number of domestic passengers grew by 20% over the previous year, from 60.2 million to 72.5 million. This makes Indonesia the fifth largest domestic market in the world after the U.S., China, Japan and Brazil. Indonesia is expected to see 100 million passengers by 2015.

    However, in the first quarter of 2013, the Indonesian economy faced some challenges as prices of garlic, meat and chili sharply rose. These commodities were scarce due to a combination of poor harvest and lack of imports. Yet consumers seemed undaunted by these challenges.