● Retail sales fell sharply in October (-14.9% YoY; Sep: -8.7%)

− Mainly attributable to a broad-based slowdown led by apparel (-58.1%; Sep: -59.7%), followed by other goods (-53.5%; Sep: -51.8%) and cultural & recreation (-40.6%; Sep: -39.5%).

− MoM: growth fell to a six-month low (-5.3%; Sep: -1.4%) mainly due to a steep decline in stationery & communication (- 11.8%; Sep: -3.9%) as well as a bigger drop in food, drinks and tobacco (-5.3%: Sep: -1.2%).

● Retail sales YoY contraction is expected to worsen in November inspite of improving consumer confidence

− Real Sales Index (RSI) is expected to fall by 15.7% YoY in November due to a broad-based slowdown observed across most commodity groups. Nonetheless, growth contraction is expected to narrow on MoM (-0.4%; Oct: -5.3%). This is also in line with the improving consumer confidence index (-25.9% YoY; Oct: -33.3%).

● YoY sales growth are expected to fall for the next three months while to rise at a slower pace for the next six months

− 3-month Sales Expectation Index (SEI): to fall by 2.7% in January (expected Dec: -1.6%). − 6-month SEI: to moderate in April 2021 (4.0%; expected Mar: 16.4%).

● Mild inflationary pressure is expected for the next three months but to fall sharply for the next six months

− 3-month Price Expectations Index (PEI): growth to fall at a slower rate in January (-6.3%; expected Dec: -6.9%).

− 6-month PEI: growth contraction to edge higher in April 2021 (-5.7%; expected Mar: -2.6%).

● Lingering effects of the COVID-19 to weigh on the economic recovery

− While consumer confidence has improved following upbeat COVID-19 vaccine news, we remain cautious about the pace of economic recovery. The lingering effects of the COVID-19 pandemic are expected to weigh on the tourism sector, an important economic driver for Indonesia

− Nevertheless, we retain a 50% probability of another 25 bps rate cut in the near term, as we believe that Bank Indonesia (BI) still has room to cut its policy rate to bolster economic recovery. BI Governor Perry Warjiyo recently reaffirmed a loose monetary policy stance and to keep its benchmark interest rate low in 2021 to support the economic recovery.

Source: Kenanga Research - 11 Dec 2020