Upcoming election could lift Indonesia car sales: Fitch

CAR sales in Indonesia could see an uptick for the next decade, as household spending improves, according to a report from Fitch Solutions.

But the mid-term wild card could be the presidential election, which is set for April 2019, as the second half of the year might see a less exuberant consumer mood on the withdrawal of fuel subsidies.

The private car sales volume is expected to hit 894,000 vehicles by end-2019, up year on year by 3.2 per cent, with annual growth to average 3.4 per cent until 2027.

"We expect the government to maintain its populist slant in the run-up to the polls," wrote the Fitch team, pointing to doubled diesel subsidies and price caps for petrol and diesel.

"We believe that government subsidy spending will increase over the coming months, especially as oil prices are likely to continue rising.

"These subsidies should help to preserve the purchasing power of consumers domestically and support private consumption growth, which we forecast to grow by 5.3 per cent in 2019."

But, with fuel subsidies expected to shrink in the post-election period, inflation is projected to surge to 4.1 per cent - against a forecast for 3.4 per cent in 2018 - and push Bank Indonesia to raise interest rates by 0.5 point to 6.5 per cent.

"This will therefore put pressure on consumer pockets over H2 2019 and act as a drag on vehicle sales," the Fitch analysts noted.