Bank Indonesia (reported the consumer index in August continues to improve, even though it remains in the pessimistic zone (below 100) - Photo by McKinsey Office

JAKARTA (TheInsiderStories) – Bank Indonesia (BI) reported the consumer index in August continues to improve, even though it remains in the pessimistic zone (below 100). Last month, the Consumer Confidence Index (CCI) stood at 86.9, which is higher than the July 2020 of 86.2.

The consumer confidence is stronger among respondents with an expenditure level of Rp2 million (US$136.05) – Rp4 million per month and for respondents aged 20 – 50 years. In spatial terms, consumer confidence improved in the 8 survey cities, with the highest increases in Surabaya, Manado and Denpasar.

The improvement of CCI in August was driven by consumer perceptions of current economic conditions. This perception continues to improve on the back of increasing confidence in income, availability of jobs and the purchase of durable goods.

While, consumer expectations regarding the forecast for economic conditions in the next 6 months were quite optimistic, although they were lower than expectations in the previous month. This is due to expectations of income, job availability and future business activities that are not as strong as the previous month.

Recently, McKinsey reported, Asian countries are absorbing the pandemic at markedly different rates, with the impact just beginning to bite in India and Indonesia even as China sees new cases stabilize and local transmission is contained. The agency said, consumers across these markets demonstrate varying degrees of confidence in the prospects for economic recovery, with those in earlier or later stages of the outbreak significantly more optimistic.

These sentiments are likely influenced both by their awareness of the disease, recently announced government contingency measures such as movement restrictions and business rescue plans, and other news events. In China, consumer confidence has stabilized, with optimism that the economy will rebound in two–three months rising to 47 percent of respondents in late March from 43 percent the previous month.

For the remaining four countries, we will refresh responses on a regular basis to track how consumer sentiment evolves. According to the research, most consumers expect their routines and personal or household finances to be impacted over the next two to six months. The exception is Japan, where a significant proportion expect the impact to last for more than seven months.

Interestingly, when asked how they expect to manage their household finances over the next two weeks, consumers in all surveyed markets said they expect both their income and savings to decrease, regardless of their expectations for economic recovery. Korean consumers were most pessimistic about the prospects for their income, while Indonesian consumers led in terms of expectations for decreased savings.

The safety of family and overall public health are primary concerns, especially in India and Indonesia, while fears over economic stability and not knowing how long the crisis will last feature more prominently in Japan, South Korea, and China.

Consequently, most consumers are doubling down on essentials such as groceries, household supplies, and in-home entertainment (for those countries with movement controls or shelter-at-home policies in place), while discretionary categories like eating out, apparel, consumer electronics, and hospitality are likely to see significantly decreased spend in the next two weeks.

In Korea, the net intent to avoid quick-service restaurants is as high as 74 percent, compared with 22 percent in China. For consumer electronics, the net intent to reduce spend is about 40 – 60 percent in all markets apart from China.

Meanwhile, most consumers expect to spend more time engaging with live TV and news broadcasts, online news, and entertainment, whereas print news consumption is set to fall across the board. The COVID-19 pandemic is evolving rapidly, deepening the uncertainty for consumers and the economies they sustain.

Consumer mindsets will continue to shift as governments and central banks introduce unprecedented countermeasures and stimulus packages to mitigate potential impacts. Keep pace with the latest McKinsey perspectives on the impacts of COVID-19.

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