Indef Says Domestic Consumption Growth Should Be Even Higher

JAKARTA - The Institute for Development of Economics and Finance (Indef) revealed that in the first quarter of 2024 household consumption growth was not optimal even though it was driven by the momentum of Ramadan and government spending.

For information, the Central Statistics Agency (BPS) noted that household consumption in the first quarter of 2024 grew by 4.91 percent year on year (yoy). This component is the main contributor to economic growth in terms of expenditure, reaching 54.93 percent of gross domestic product (GDP), and is the highest since 2022.

Researcher from the Center for Trade and Investment Industry, Indef Ahmad Heri Firdaus, said that household consumption growth should be even higher, above Indonesia's economic growth of 5.11 percent in the first quarter of 2024.

According to Ahmad, the growth in household consumption should be even higher because it is driven by the distribution of social assistance, the momentum of elections and the momentum of Ramadan so that it should be able to encourage higher consumption.

"Our main economic contributor, namely household consumption, is less advanced if the figure is 4.9 percent, it should be increased again. Because if the main contributor to household consumption is still growing under general economic growth, it will be difficult to accelerate," he said in a virtual discussion held by Indef, Tuesday, May 7.

The government consumption and consumption of Non- Profit Institutions that Serve Households (LNPRT) are components that experience the highest growth compared to other components, with 19.90 percent and 24.29 percent, respectively.

According to Ahmad, although the growth is the largest, the government's contribution or distribution of consumption to economic growth is only 6.25 percent, and LNPRT consumption is 1.43 percent. This is much lower than household consumption, which has the largest contribution of 54.93 percent.

However, Ahmad regrets that the high consumption of the government and LNPRT cannot be a driving force or stimulus for household consumption so that it can grow higher.

"So the government spending is not just spending money from the state budget, but the hope is to move the economy in other components. For example, the government's budget is expected to be stimulus for public consumption, investment up to exports, but it seems that it has not yet reached there," he said.

In addition, Ahmad assessed that the government's efforts to stimulate the economy had not been so successful because household consumption growth was still lower than economic growth.

"This means that the stimulus that has been disbursed, both in terms of production and consumption, has not been hit by the target, has not been able to move the economy optimally," he said.