Indonesia's Automobile Market Expected to Shrink by 49%

The Indonesian automobile market is expected to shrink to around 530,000 units in 2020, decreasing by 49% from 2019 (1.03 million units). One of the significant reasons of this drastic drop is that the new car market has been sluggish for a long time, mainly due to the largest spread of the new coronavirus among the major ASEAN countries and the stricter examination of automobile loans.

The monthly sales volume decreased by more than 90% from April to May due to the influence of social restrictions caused by the new coronavirus spread. Since then, the sales volume has been gradually recovering as social restrictions are eased. However, the volume has remained at about half the level of the same month of the previous year from September to October. The Indonesian new car market has continued to fall below the same month of the previous year for 16 consecutive months since July 2019, and the impact of the pandemic has been one of the major factors accelerating the deterioration of the market.

Looking at the economic situation, the GDP growth forecast for 2020 by the IMF is -1.5% as of October 2020. Although it has been revised upward from -2.0% announced in April, it may be the first negative growth since 1998, which was affected by the 1997 Asian financial crisis. Regarding the exchange rate, the IDR has been depreciating since March, and in April it temporarily reached about 1.00 USD = 16,000 IDR. Under these circumstances, the Bank of Indonesia lowered the policy interest rate to the lowest level 3.75% in November 2020. This was the fifth downward revision since January 2020 (total -1.25 points).

As for automobile sales, although it will take some time to return to the pre-COVID-19 level of over 1 million units, it is expected to recover to 790,000 units in 2021. As of November 2020, the Indonesian automotive industry association GAIKINDO projected the forecast for 2021 to be 800,000 units, and considers that it will take about two years for the economic situation to recover.