Indonesian Tire Sales to Remain Sluggish in 2016
Growth of Indonesia's tire industry is expected to remain stagnant until at least the last quarter of 2016 as people's purchasing power is weak while the circulation of money is slow amid sluggish economic growth. Domestic sales of tires in Indonesia are expected to reach around 8.25 million tires in full-year 2016. Meanwhile, about 30 million tires are expected to be exported next year. As such, Indonesia's total tire sales are projected to reach around 38 million in 2016.
Azis Pane, Chairman of the Indonesian Tire Companies Association (APBI), hopes that starting from the fourth quarter of 2016 tire sales will grow again, provided that Indonesia will not be too affected by more interest rates in the USA. If capital outflows occur due to US interest rate hikes in 2016, then the rupiah is bound to weaken, implying that imports into Indonesia become more expensive. This is a problem for Indonesia's tire manufacturing sector as part of raw materials (particularly rubber) are imported in US dollars.
Furthermore, in an effort to combat capital outflows Indonesia's central bank (Bank Indonesia) may raise its benchmark interest rate (BI rate), hence curtailing credit expansion and economic growth in Southeast Asia's largest economy. Due to higher borrowing costs it becomes more expensive for consumers to purchase a loan and therefore car and motorcycle sales should decline further, resulting a falling demand for tires.
Pane said domestic sales of tires in Indonesia have been on the decline since 2013 when 10 million tires were sold. In 2014 tire sales fell to 9 million.
