in

Indonesian shares tumble 7% on considerations over economic system


Unlock the Editor’s Digest for free

Indonesia’s main stock index fell 7 per cent on Tuesday as concerns mounted over weakening consumer spending in south-east Asia’s largest economy and President Prabowo Subianto’s costly spending plans.

The Jakarta Composite index dropped as much as 7.1 per cent to hit its lowest level since 2021. The stock exchange halted trading briefly after the index tumbled 5 per cent but shares fell further when trading resumed.

The index has slid about 14.2 per cent this year and is among the worst performers globally. The rupiah has also dropped around 2 per cent this year.

Investors have been spooked by slowing consumption in Indonesia, where purchasing power and consumer confidence have been declining in recent months. Data from the central bank last week showed that consumer confidence dropped in February for a second consecutive month.

Indonesia’s middle class has been under pressure from a lack of adequate formal employment and a decline of the manufacturing sector.

In January, Bank Indonesia unexpectedly cut interest rates to boost growth despite the weakening of the rupiah. It also lowered the full-year growth forecast to a range of 4.7-5.5 per cent from a previous estimate of 4.8-5.6 per cent.

The central bank is holding a monetary policy meeting this week and is due to announce its interest rate decision on Wednesday.

Since coming to power in October, Prabowo has launched a nationwide free meals programme for schoolchildren and pregnant women, a policy that is expected to cost $28bn a year.

The plan has placed a strain on already-stretched finances and prompted widespread austerity measures, hitting sectors including infrastructure.

Local media have suggested that finance minister Sri Mulyani Indrawati — who has served in that position for nearly nine years — may soon step down, which has unnerved investors. The government has denied these reports.

“While the government’s rollout of social assistance may cushion purchasing power, the consumption recovery is envisioned to be weaker than previously expected,” Brian Lee, a Maybank economist, said in a research note on Tuesday.

“Rising economic uncertainty and job worries ensuing from Chinese competition are weighing on spending appetite,” he said.

Maybank lowered Indonesia’s 2025 growth forecast to 5 per cent from 5.2 per cent, and expects the central bank to cut rates by 25 basis points this week.

As resource-rich Indonesia has focused on the commodities sector, manufacturing as a contributor to GDP has dropped steadily over the past two decades, and in recent months several factories have been hit by a flood of cheap goods from China.

Sritex, one of Indonesia’s biggest textile companies, closed operations this month and laid off more than 10,000 employees after being declared bankrupt.

Additional reporting by William Sandlund in Hong Kong



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

GIPHY App Key not set. Please check settings

Historic Sample From 2020 Hints Ethereum Might Be Poised For A Parabolic Rally, Analysts Clarify

Apple anticipated to carry its 5G modem to iPhone 18 Professional fashions