● Retail sales remained in a contraction for four straight months, declining by 0.8% YoY in February (Jan: -0.3%)

- Mainly attributable to a sharp fall of clothing (-40.4%; Jan: -27.5%) and cultural recreation (-16.8%; Jan: -3.2%).

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

- Real Sales Index (RSI) fell by 5.4% YoY, lowest since Oct 2011 weighed by a broad-based slowdown, led byapparel (-45.9%; Feb: -40.4%), other goods (-40.6%; Feb: 32.4%),and stationery & communication (-10.5%; Feb: -4.0%).

- This is in line with a deterioration in the consumer confidence index, which fell sharply by 8.6% YoY (Feb:-6.0%), lowest since Dec 2015 on the impact of the pandemic.

● Sluggish sales performance expected for the next 3 to 6 months amid a weak economic outlook

- 3-month Sales Expectation Index (SEI): fell sharply to 5.4% YoY (Jan: 0.4%).

- 6-month SEI: fell sharply by 6.6% YoY (Jan: 4.6%) signalling weak demand going forward.

● Inflationary pressure to rise in the next three months before it subsides

- 3-month Price Expectations Index (PEI): rose 12.4% YoY (Jan: 7.3%), highest in 23 months in line with fasting month and Eidul-Fitr festive period where demand for food and clothing would rise.

- 6-month PEI: deflationary (-1.0%; Jan: 2.5%), on the expectation of slowing economic growth and post-festive season normalisation.

● Retail sales are expected to worsen further

- With the surge in COVID-19 positive cases and deaths, the government might impose a lockdown soon. This wouldhamper the retail sales, which already in the fourth month of a contraction. The government has resisted the need to impose a city lockdown, citing such measures would hurt the poor.

- On the monetary front, we expect BI to stay put in the next Board of Governor meeting (April 14th) despite its ample room to lean towards a rate cut by another 25-50bps, as the probability seemed to be reduced due to weak Rupiah.

Source: Kenanga Research - 9 Apr 2020