Spending Negatively Impacted By Interest Rate & Gambling
Key Summary:
- High interest rate makes deposit more attractive for consumers
- Gambling expenditure recorded at IDR200tn, a headwind to discretionary spending
- Spending indicator sees no sign of improvement; retailers are prone to downgrades
From the beginning of this year, we have been calling for our bearish outlook on general consumption that is starting to get noticed by investors despite their initial pushbacks. Our premises are due to lower income & wider inequality (read here), higher inflation (read here), rising layoffs & lack of employment (read here) all of which are structurally negative for future household spending. However, there are additional headwinds that affect consumption but not fully reflected by the market, which are high interest rate and gambling.
The soft 3Q23 sales indications from some retailers are being justified as a result of seasonality effect. Yet, we think this is misplaced as sequentially, sales have been decelerating since its peak in 2H22, in-line with our thesis. Similarly, weaker-than-expected revenue from staples have been overlooked due to improving margin from lower costs. Nevertheless, it all points to weakening purchasing power that we expect to sustain and shrink the spending activity in the economy.