Research

Consumption: Structurally Weak & Bearish

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Algo Research Team

Economics | Aug 15, 2023 | Views: 258

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Key Summary:

  • Higher exports do not translate to more consumption
  • Changing dynamics in employment to low-quality & unstable works
  • Rising layoffs in labor-intensive, but investment to capital-intensive

We believe that consumption in Indonesia is facing structural weakness coming from a paradigm shift to export-oriented sectors combined with a change in employment dynamic, whereby more labors are going into low-quality informal sectors while formal works fell significantly. This was a result of rising layoffs in labor-intensive industries, while investment like industrial downstreaming is more capital-intensive and unlikely to "trickle-down" towards low-mid consumption.


Accordingly, the nature of spending will be more cyclical that could drag purchasing power and growth prospect. Consumption will also be more vulnerable to rising inflation and higher taxes such as excise, carbon, etc that would be passed-on from producers to consumers. Thus, we expect consumption to be below optimal where expenditure gap would widen going forward.

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