CEOs Turn Less Optimistic about Indonesia's Politics and Economy
Entering the second quarter of 2018 chief executive officers (CEOs) have become less optimistic about the Indonesian economy and politics. This should be no surprise considering there have emerged significant concerns about a looming global trade war (with the USA and China as main actors), while further monetary tightening in the USA has been putting pressure on the Indonesian rupiah.
Moreover, approaching local elections in 2018 as well as legislative and presidential elections in 2019, emotions are set to rise.
The Kontan CEO Confidence Index (KCCI), compiled by local Indonesian media firm Kontan, fell from a record high level of 3.66 points in December 2017 to 3.49 points in March 2018. However, this latest score is still a stronger level compared to the same quarter one year earlier (see table below).
Kontan CEO Confidence Index (KCCI):
| Dec. 2017 |
March 2017 |
June 2017 |
Sep. 2017 |
Dec. 2017 |
March 2018 |
|
| Score | 3.16 | 3.11 | 3.46 | 3.22 | 3.66 | 3.49 |
Source: Kontan
A closer look at the data shows that CEOs have particularly become less optimistic about business expansion, purchasing power, the state of the domestic economy of Indonesia, and national politics. All these components are inter-related. The latest gross domestic product (GDP) and retail data show that household consumption has remained subdued in 2017 and the start of 2018. The exact reason behind bleak household consumption remains unclear. But with the population of Indonesia being less enthusiastic to spend money on products and services, companies are hesitant to invest in business expansion.
Meanwhile, Indonesia's economic growth pace has difficulty to accelerate markedly (partly due to subdued household consumption). Another issue is that the upcoming elections in 2018 and 2019 bring a high degree of uncertainty. Considering Indonesia is a young democracy while there is a multitude of political forces that seek to gain political power, political tensions and uncertainties are always higher than in long-established democracies ahead of elections.
Despite the sliding score in the KCCI, it should be noted that most CEOs that participated in the Kontan survey are "neutral" or "optimistic" about Indonesian politics and the economy. Few are pessimistic.
There is one component in the KCCI that showed an improving score: government spending. In the first two months of 2018 government spending is well on schedule and this has translated into rising optimism among CEOs. Rising public spending on infrastructure development was cited as one of the factors that make the business environment more attractive on the long term.
Components of the Kontan CEO Confidence Index (KCCI):
| Components | March 2017 |
Dec. 2017 |
March 2018 |
Q-t-Q Change |
| Domestic Economy | 3.47 | 3.95 | 3.80 | -3.80% |
| Government Spending | 3.67 | 3.75 | 3.85 | +2.67% |
| Purchasing Power | 2.67 | 3.40 | 3.05 | -10.29% |
| Global Economy | 2.67 | 3.00 | 3.00 | 0.00% |
| National Politics | 2.93 | 3.45 | 3.35 | -2.90% |
| Business Expansion | 2.73 | 4.42 | 3.90 | -11.76% |
Source: Kontan
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