OREANDA-NEWS. Fitch Ratings believes Indonesia's auto sales could recover 3%-5% in 2016 on the back of an improved economic outlook and lower interest rates, which may improve consumer purchasing power. This is despite declining domestic auto sales in the first two months of 2016, which followed 18 months of consecutive sales declines.

Based on the latest data from the Indonesian Automotive Industry Association (Gaikindo), car and motorcycles sales declined 5% and 11% yoy to 173,000 units and 941,000 units respectively in the first two months of 2016. But this latest result is the smallest percentage decline since August 2014.

Supporting a recovery, Indonesia's economic growth may be boosted by government policies, which include accelerated infrastructure spending, says Fitch. In addition, Bank Indonesia has cut its reference rate by a total of 75 bps in the past three months to 6.75% in March 2016, which would support auto loans financing. About two-thirds of car purchases in Indonesia are made using car loans.

While continued weak commodity prices will dampen demand for commercial vehicles, Fitch says this could be partly offset by increased construction sector demand, as the government plans to boost infrastructure spending.

However, weak commodity prices and delays in executing government spending may hinder growth. Persistently weak oil prices will affect Indonesia's two main export products, commodity-related coal and crude palm oil - also limiting price recovery.