BRI MSME Business Index Quarter III 2024: Slowing Expansion, Needs Strengthening Purchasing Power

JAKARTA - PT Bank Rakyat Indonesia (Persero) Tbk published the MSME Business Index in the third quarter of 2024 on Monday, November 4. In the publication, it was known that the MSME business expansion in the third quarter of 2024 slowed down, as reflected in the MSME Business Index which is at the level of 102.6 or lower than the previous Quarter II 2024, which was 109.9.

BRI Micro Business Director Supari revealed that in Q3-2024 the MSME Business Index was still at the level of 102.6 (above 100), meaning that the MSME business expansion was still ongoing.

"This is supported by community activities to return to normal after the National Religious Holidays (HBKN) such as Eid al-Fitr, Vesak and Idua Adha, plus school holidays, an increase in the harvest of Plantation commodities, activities of government and private projects are increasing towards the end of the year and many parties (marriage) and political party activities ahead of the elections," explained Supari.

However, when compared to the previous quarter, MSME business expansion in Q3-2024 slowed down, as reflected in the decline in the MSME Business Index from 109.9 to 102.6.

"This reduction is due to a decrease in people's purchasing power, normalization of demand after the celebration of the HBKN, normalization of agricultural production after the main harvest, enlarging the price of input goods, and increasingly fierce competition," said Supari.

A total of five components of the MSME Business Index have an index above 100, while the other three components decreased below 100. The lowest index is seen in the production/sale volume component (index related to 94.1), sales value component (index related to 96.1), and labor use component (index related to 99.2).

Normalization of demand for goods and services after HBKN and decreasing food production after the main harvest, as well as rising prices of input goods caused the production volume and sales of MSMEs to decrease. Although the average selling price recorded an increase, the decrease in production/sales volume was sufficient to cause sales value to also decrease.

Ahead of the planting season for food crops and Nataru celebrations, orders and input goods inventories are still experiencing an increase (related index remains above 100), but slower than Q2-2024. This is due to the increase in the price of input goods and business prospects that are not as optimistic in the previous quarter. The supply of goods is still increasing, with a rate that is not as fast as the previous quarter, in line with the decline in production. Investment activities have also slowed down, due to limited funds, which are partly absorbed by the rising price of input goods.

Viewed sectorally, the expansion of the MSME business in Q3-2024 has largely slowed down. Several business sectors, such as: the agricultural sector as well as the hotel and restaurant sectors, even show contraction.

Agriculture sector activity decreased following the post-harvesting of food crops in Q2-2024 and the dry dry dry season in a number of areas. The hotel and restaurant sector also experienced a post-HBKN contraction and school holidays in the previous quarter, which made demand for accommodation services significantly decrease.

Meanwhile, the mining sector is still expanding in line with the dry season which is conducive to this sector, especially sand mining for construction activities and clean water demand. Expansion in the industrial, trade and transportation sectors is mainly supported by an increase in the average selling price and demand which is still relatively strong, after working activities and schools returned to normal after HBKN.

However, the expansion of these sectors activities has slowed compared to the previous quarter. The increase in service sector activities is in line with the large number of parties such as weddings and the increase in political party activities ahead of the Pilkada. The highest business index occurred in the construction sector (indexes related to 116.3) supported by the increasing activity of government and private projects towards the end of the year and conducive weather.

In Q4-2024, MSME business people remain confident in their future business expansion, reflected in the MSME Business Expectation Index of 122.3. However, compared to the previous quarter, the level of Business Expectation Index Q3-2024 experienced a decline, which gave a signal of a more moderate rate of increase in business activity. This decline in optimism was mainly due to the weakening of people's purchasing power, increasingly fierce competition, and the start of the planting season for food crops.

In line with the slowing business activities of MSMEs, the sentiment of MSME businessmen towards the economy and business in general has also decreased. This is reflected in the Business Sentiment Index (ISB) of MSME Q3-2024 which is at the level of 115.1. The Current Situation Index (ISS) component is down -7.5 points to 94.1, while the Expectation Index (IE) weakened -4.0 points to 136.0. ISS which weakened to below level 100, in line with the slowing down of the MSME business expansion in Q3-2024.

Along with the slowdown in business growth and the weakening of MSME business sentiment, the MSME's assessment of the government's ability to carry out its main tasks has also decreased. This is reflected in the MSMEs' confidence index for the Government (IKP) Q3-2024 which weakened -4.6 points (indexes related 125.9).

Judging from the constituent components, almost all IKP components in Q3-2024 have weakened compared to the previous quarter. MSME businesses give the highest assessment of the government's ability to create a sense of security and peace (indexes related to 144.2) and provide and care for infrastructure (index related to 138.2).

Meanwhile, the lowest assessment was given by MSME players against the government's ability to stabilize the price of goods and services (indexes related to 110.5).

"This seems to be related to the price of input goods which continues to increase and erode business profits, so that it is felt very burdensome for some MSME business people," concluded Supari.