CEOs' Optimism about Indonesian Economy & Politics Falls Slightly
Chief executive officers (CEOs) in Indonesia have become slightly less optimistic about the Indonesian economy and politics. This makes sense considering the presence of simmering global trade tensions, sharp rupiah depreciation against the US dollar, and Bank Indonesia's recent series of interest rate hikes.
The Kontan CEO Confidence Index (KCCI), compiled by local Indonesian media company Kontan, declined from a reading of 3.49 in the second quarter of 2018 to 3.45 in the third quarter of 2018. In our opinion this is actually a rather modest decline considering global trade tensions have increased recently, while there are signs of a growing fifth column in Indonesia that is using religious (and to a lesser extent ethnic) issues to undermine popular support for the Indonesian government. This jeopardizes chances for incumbent Indonesian President Joko Widodo, the market-favorite who supports a conducive business environment, to become elected for a second term.
If we take a look at the latest data, then we see that CEOs' Q3-2018 optimism about the Indonesian macro-economy, people's purchasing power, and national politics have all declined. Meanwhile, there was no change regarding CEOs optimism about the global economy and Indonesian government spending. What is remarkable is that optimism about business expansion in Indonesia has slightly grown in Q3-2018.
Based on anecdotal evidence Indonesian companies have to invest in business expansion in order to survive, despite the presently challenging context that includes expectations of falling consumer purchasing power amid the weak rupiah and Bank Indonesia's higher benchmark interest rate.
On the other hand, rising optimism about business expansion is fed by a rebound in retail sales in Indonesia. Retail sales grew 4.1 percent year-on-year in April, supported by sales of automotive fuels, food, beverages and tobacco. Meanwhile, government-led infrastructure projects are hoped to cause the multiplier effect, including a boost in people's purchasing power, in the second half of 2018.
Kontan CEO Confidence Index (KCCI):
| Jan. 2017 |
April 2017 |
July 2017 |
Oct. 2017 |
Jan. 2018 |
April 2018 |
July 2018 |
|
| Score | 3.16 | 3.11 | 3.46 | 3.22 | 3.66 | 3.49 | 3.45 |
Source: Kontan
Components of the Kontan CEO Confidence Index (KCCI):
| Components | Oct. 2017 |
Jan. 2018 |
April 2018 |
July 2018 |
Q-t-Q Change |
| Domestic Economy | 3.74 | 3.95 | 3.80 | 3.75 | -1.32% |
| Government Spending | 3.70 | 3.75 | 3.85 | 3.85 | 0.00% |
| Purchasing Power | 2.91 | 3.40 | 3.05 | 3.00 | -1.64% |
| Global Economy | 2.87 | 3.00 | 3.00 | 3.00 | 0.00% |
| National Politics | 2.61 | 3.45 | 3.35 | 3.15 | -5.97% |
| Business Expansion | 3.52 | 4.42 | 3.90 | 3.95 | +1.28% |
Source: Kontan