● Retail sales growth plummeted 20.6% YoY in May (Apr: -16.9%), lowest since December 2008 due to the movement restriction imposed by the government

- Broad-based decline in all products led by apparel (-74.0%; Apr: -70.9%), followed by other goods (-72.9%; Apr:-68.5%) and cultural & recreation (-53.8%; Apr: -48.5%).

● Retail sales in June is expected to remain in contraction foraseventh straight month, albeit improving as the government started to ease social distancing measures

- Real Sales Index (RSI) to fall by 14.4% YoY in June, on a broad-based slowdown, led by apparel (-74.0%), other goods (-67.5%), and cultural & creation (-44.8%).

- This is in line with the decline in the consumer confidence index, which fell by 33.7% YoY (May: -39.3%).

● Improvement in sales is expected for the next 3 to 6 months in line with the reopening of the economyandthe impact of the recovery plan

- 3-month Sales Expectation Index (SEI): to fall by 2.4% in August, albeit lesser than the previous month of -16.8%.

- 6-month SEI: growth to rebound by 3.4% YoY in November, highest in 4 months.

● Subdued inflationary pressure for the next 3 to 6 months as seller retain price level

- 3-month Price Expectations Index (PEI): price to moderate to 0.2% in August (expected July:1.3%).

- 6-month PEI: sharp deflationary pressure (-8.1%) in November.

● Fears of a second wave of COVID-19 infections could further deteriorate retail sales

- We expect the retail sales to remain under pressure in the immediate term, as Indonesia continues to report a record high of new coronavirus cases daily. Though the government has eased movement restrictions, the confidence level is expected to remain weak on the impact of business closure, rising unemployment rate, and weak income growth,which would hamper the consumer spending going forward.

- Overall, we retain our view that Bank Indonesia would cut its benchmark rate, the 7-day reverse repo rate by at least 25 bps to a new record low of 4.00% at its upcoming Board of Governor meeting amid subdued inflationary pressure and weak demand.

Source: Kenanga Research - 9 Jul 2020