Consumers’ Views of Economy Key to Gauging Spending Trends

KOMPAS/TOTOK WIJAYANTO

Bread-making activities in a household-scale bread industry in the Bendungan Hilir area, Central Jakarta, on Friday (7/8/2020). The breads are marketed in offices, schools and market environments at a price of Rp. 4,000 per seed. The Covid-19 pandemic has also hit these home businesses.

The ongoing Covid-19 pandemic has spread fear among the productive-age population regarding their economic prospects. Their strongly rational considerations in consumption while prioritizing health will be key for the government in adjusting economic policies going forward.

The first casualty of the Covid-19 pandemic is the real economic sector. Industrial and trading activities have plummeted both at the national and global level. According to a Trade Ministry publication issued on 5 May 2020, 60 percent of the processing industry has been hit by the pandemic, 40 percent of which is mid-scale industries with huge demand.

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Consequently, as reflected in a Manpower Ministry data on 31 July 2020, 2.14 million workers have been either fired or furloughed. As industrial and manpower activities plummet, income drops.

People are focused on two things, namely decreased income and mass firing, as the major aspects of economic contraction. These views were captured in the results of a Kompas poll last week.

Some 47 percent of respondents said that decreased income was the main factor behind the economic contraction. Meanwhile, around a third of other respondents maintained that mass firing reflected a decreased performance across companies, and this led to economic decline.

This prudence is also reflected in considerations on sources of funds. Some 81 percent of the respondents are delaying getting bank loans.

In line with these assessments, people have become more prudent in spending their money. Eight of 10 respondents have reduced or considered reducing their expenses. This prudence is also reflected in considerations on sources of funds. Some 81 percent of the respondents are delaying getting bank loans.

Similar consumption rationality has emerged among young respondents of the millennial generation as well as among mature productive-age respondents or the Generation X. Some 79 percent of the millennial respondents and 87 percent of the Generation X respondents have decided to save money based on their assessment of the economic situation.

As for funding, 81 percent of the millennials and 77 percent of the Generation X have decided to delay getting bank loans. The absence of urgent needs and avoiding risk are major rational considerations among productive-age respondents.

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More rational consumption behavior among the productive-age population have significant effects on the monetary sector. The performance of banks, which hold 78 percent of the national financial sector’s assets, has declined especially due to decreasing fees from credit administration in line the slowdown in the loans business.

KOMPAS/STEFANUS OSA

The Savasa cluster in the Deltamas industrial area, Cikarang, Bekasi Regency, West Java, which was built using the Wall-Precast Concrete method did not escape the impact of COVID-19. This innovative technology developed by Panasonic Homes makes properties equipped with the use of smartphone functions.

Average consumer credit and working capital grew by merely 5.64 percent and 3.96 percent, respectively, between March and May this year. In the same period last year, consumption credit and working capital grew by 6.45 percent and 4.52 percent, respectively.

Divided

Thus far, the public tends to be divided in assessing government policies. More than half of the respondents said the government policies were ineffective. However, a big percentage of respondents (43 percent) think otherwise.

Division is also apparent in economic forecasts, as reflected in the opinions of productive-age respondents on business conditions and economic prospects in the next three months.

Some 47 percent of the respondents have doubts about the resilience of micro and small businesses, which account for 99 percent of businesses in Indonesia. However, another 46.6 percent of the respondents think otherwise.

Some 49 percent of respondents in this group believe in the resilience of micro and small businesses amid the pandemic, while another 46 percent of the respondents have doubts.

A divided view on the resilience of micro and small businesses is also found among young productive-age respondents. Some 49 percent of respondents in this group believe in the resilience of micro and small businesses amid the pandemic, while another 46 percent of the respondents have doubts.

Among mature productive respondents, 45 percent are optimistic about the resilience of micro and small businesses, while another 48 percent think otherwise.

Productive-age respondents’ views on the resilience of big businesses tend to be more optimistic. Half of the mature productive respondents believe in the resilience of big businesses amid the pandemic.

Millennials as the young productive group are even more optimistic their assessment of big businesses’ resilience. Some 62 percent of them believe in the ability of big businesses to handle the pandemic.

Kompas/Wawan H Prabowo

The blue sky during the Covid-19 pandemic can be seen above an office building in Jakarta.

These assessments affect the economic prospects going forward. Young productive-age people have more optimistic views on economic prospects in the next three months. By contrast, mature productive people are more pessimistic on the economic prospects in the next three months.

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This shift in public behavior into becoming increasingly rational is important considering its consequences for consumption. The sector, which supported around 58 percent of the gross domestic product (GDP) in the second quarter of 2020, has contracted by 6.51 percent. Patterns of economic rationality among productive-age people must be the main focus, given that this group determines any improvement in consumption.

Finally, providing a sense of security from Covid-19 is the big task to realize soon. According to 62.4 percent of the respondents, the government should prioritize health before ensuring the ease of doing business and giving incentives to push consumption, especially among productive-age people. (Kompas R&D)