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Rising vaccination to boost Indonesia consumption amid volatile commodity prices: Fitch
INDONESIA’S consumer confidence and spending should recover on the back of a rising vaccination rate and as the population gets used to living with Covid-19, although it still sees pressure from volatile commodity prices, said Fitch Ratings.
In a report on Wednesday (Mar 16), the research team noted that rising vaccination should help mobility and drive economic and social activity.
This comes as the recovery of Indonesia’s consumption-driven economy is likely dependent on private spending, as the government is aiming to reduce its fiscal stimulus, Fitch said. Indonesia’s government had allocated less than two-thirds of 2021’s recovery budget for 2022.
The research team expects the number of negative rating actions due to the pandemic will subside, as most of the actions were taken in 2020 and 2021. It also noted that stable outlooks at the start of 2022 were comparable to pre-pandemic levels.
However, higher international oil and food prices could drive up inflationary pressures, erode purchasing power and challenge growth, Fitch said. It noted that inflationary pressures have so far been limited.
As for 2 of Indonesia’s major commodities, thermal coal and crude palm oil (CPO), while prices have remained strong, the research team expects these will likely moderate over the medium term.
Persistently strong commodity prices could also erode the margins of consumer-related companies such as Indofood CBP Sukses Makmur, Mayora Indah and Japfa Comfeed, as price adjustments are not immediate and frequency is limited.
The commodity sector will likely continue to face pressure from regulatory uncertainty in 2022, with amplified risks from the government’s continued push to boost domestic commodity refining capacity, Fitch said.
In the past few months, the Indonesian government had temporarily banned coal exports as well as raised producers’ obligation to keep a portion of CPO in the domestic market.
Source: https://www.businesstimes.com.sg/asean-business/rising-vaccination-to-boost-indonesia-consumption-amid-volatile-commodity-prices