● Retail sales fell by 0.3% YoY in January (Dec 19: -0.5%)

- Mainly attributable to weaker growth in clothing (-27.5%; Dec: 0.7%), and a moderation in car spare parts & accessories (6.2%; Dec: 15.7%) due to post-festive season normalisation.

● February’s retail sales estimate points towards deeper deterioration following the impact of COVID-19 outbreak

- Real Sales Index (RSI) fell by 1.9%, an 6-month low largely weighed by slower sales in car spare parts & accessories (3.0%; Jan: 6.2%) and food, drinks & tobacco (0.8%; Jan: 3.5%).

- This is in line with consumer confidence index which fell to a 4-year low of -6.0% YoY (Jan: -3.0%), indicating weak consumer demand going forward.

● Improved sales performance expected for the next 3 to 6 months due to festive season

- 3-month Sales Expectation Index (SEI): increased marginally to 0.4% YoY (Dec: -6.9%).

- 6-month SEI: Rebounded to 4.6% YoY (Dec: -5.6%) driven by festive season sales.

● Inflationary pressure build up in the next three months before it subsides

- 3-month Price Expectations Index (PEI): increased to 7.3% YoY, highest in 16 months ahead of the upcoming fasting month where demand for food and clothing would rise.

- 6-month PEI: low inflationary pressure (2.5%), typical of post Eid-ul-Fitr festive period.

● Consumption which represents more than half of Indonesia's GDP is expected to slow in 1Q20 due to the impact of COVID-19 which would potentially drag overall growth to below 5.0% in 2020 (consensus: 5.0%; 2019: 5.02%)

- Overall, Bank Indonesia (BI) may continue its easing cycle as BI still has the scope to adjust its policy rates. The house expects BI to embark on another 25-50bps rate cut in the next Board of Governor meeting (March 19th).

Source: Kenanga Research - 11 Mar 2020