Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Indonesia’s main stock index fell nearly 4 per cent on Tuesday as concerns mounted over weakening consumer spending in south-east Asia’s largest economy and President Prabowo Subianto’s costly spending plans.
The Jakarta Composite index dropped as much as 7.1 per cent to hit its lowest level since 2021, triggering a brief trading halt. The market closed down 3.8 per cent after paring some losses.
The index has fallen 14.8 per cent in the past year and is among the worst performers globally. The rupiah has also dropped about 2 per cent against the dollar this year.
Investors have been spooked by slowing consumption in Indonesia, where purchasing power and consumer confidence have been declining in recent months.
The latest consumer price data showed year-on-year deflation in February, the first such reading in 25 years. Consumer confidence also dropped in February for a second consecutive month.
Indonesia’s middle class has been under pressure from a lack of adequate formal employment and a decline in the manufacturing sector.
In January, Bank Indonesia unexpectedly cut interest rates to boost growth despite the weakening rupiah. It also lowered its full-year economic growth forecast to a range of 4.7-5.5 per cent from a previous estimate of 4.8-5.6 per cent.
The central bank is holding a monetary policy meeting this week and is due to announce its interest rate decision on Wednesday.
“Indonesia’s recent deflation print is raising concerns that the once-strong consumption growth story may be losing steam,” said Mohit Mirpuri, a senior partner at asset manager SGMC Capital.
Tuesday’s market slump could be from traders unwinding positions or forced to sell off stocks, he said, adding that a rate cut by the central bank could boost sentiment.
Fiscal woes have added to the economic concerns. Since coming to power in October, Prabowo has launched a nationwide free meals programme for schoolchildren and pregnant women, a policy that is expected to cost $28bn a year.
The plan has placed a strain on already stretched finances and prompted widespread austerity measures, hitting sectors including infrastructure. State revenue for the first two months of the year fell by a fifth from the previous year, raising more questions about how Prabowo will fund his programmes.
Local media have suggested that finance minister Sri Mulyani Indrawati — who has served in the position for nearly nine years — may soon step down, which has unnerved investors. The government has denied the reports.
“While the government’s rollout of social assistance may cushion purchasing power, the consumption recovery is envisioned to be weaker than previously expected,” Brian Lee, a Maybank economist, said in a research note on Tuesday.
“Rising economic uncertainty and job worries ensuing from Chinese competition are weighing on spending appetite,” he said.
Maybank lowered Indonesia’s 2025 growth forecast to 5 per cent from 5.2 per cent and said it expected the central bank to cut interest rates by 25 basis points this week.
As resource-rich Indonesia has focused on the commodities sector, manufacturing as a contributor to GDP has dropped steadily over the past two decades, and in recent months several factories have been hit by a flood of cheap goods from China.
Sritex, one of Indonesia’s biggest textile companies, closed operations this month and laid off more than 10,000 employees after declaring bankruptcy.
Additional reporting by William Sandlund in Hong Kong
Source: Economy - ft.com
