The World Bank revised down its forecast for economic growth in Indonesia for the year 2014. In the July 2014 edition of the Indonesia Economic Quarterly, the institution projects economic growth in Southeast Asia’s largest economy at 5.2 percent, slightly down from its previous forecast of 5.3 percent. The downgrade is the result of a weaker outlook for commodity prices and tighter credit conditions. Moreover, the growing fiscal deficit contributes to the challenges that will be faced by the new government (which will be inaugurated in October 2014).

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The Governor of Indonesia’s central bank (Bank Indonesia), Agus Martowardojo, said that the Indonesian economy can grow more than six percent provided that several important structural reforms will be implemented in order to avoid the middle income trap. This trap occurs when rapidly growing economies stagnate at middle-income levels for many years, thereby failing to reach a high income level (as has been the case with Brazil, Mexico, South Africa and other middle income countries from the early 1980s to the mid-2000s).

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The central bank of Indonesia (Bank Indonesia) expects to see a trade deficit in the month of April 2014 due to a significant increase of imports (around 11 percent month-to-month), while prices of a number of important export commodities have been under pressure (including coal and crude palm oil). Governor of Bank Indonesia Agus Martowardojo said that weak demand from China impacts negatively on the trade balance. Bank Indonesia's statement contradicts the institution's earlier statement which hinted at a surplus of USD $600 million in April.

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Indonesian newly installed Coordinating Minister for Economic Affairs Chairul Tanjung expects deflation in May 2014 due to stable prices of the main agricultural and food commodities. After Tanjung was appointed to replace Hatta Rajasa, who resigned from his post to focus on his vice-presidential bid in the July presidential election, Tanjung announced that he will prioritize policies that foster stable food prices as well as fiscal stability. In April 2014, Indonesia recorded deflation of 0.02 percent (month-to-month).

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Ahead of the World Rubber Summit 2014 (held between 19 and 21 May in Singapore), Asril Sutan Amir, adviser to the Indonesian Rubber Association (GAPKINDO), said that Indonesian rubber output may decline by three percent or 100,000 metric tons (Mt) to 3 million Mt in 2014 due to the impact of this year's possible new El Nino cycle. An extended dry season will lead to damaged rubber trees and thus less production. Indonesia is currently the world's second-largest rubber producer after Thailand.

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An official at Indonesia's Ministry of Energy and Mineral Resources stated that the production of coal in the first four months of 2014 grew five percent (year-on-year) to 147 million tons. As such, the country is still on track to meet this year's coal production target of 426 million tons. Exports of Indonesian coal totaled 109 million tons in the January-April 2014 period, while the remainder (38 million tons) was sold on the domestic market. Indonesia, Southeast Asia's largest economy, is one of the world's largest producers and exporters of coal.

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Indonesia's March 2014 trade balance recorded a surplus of USD $673 million as the value of exports reached USD $15.21 billion, while imports stood at USD $14.54 billion. It was the second consecutive monthly trade surplus for Indonesia. In February 2014, the country posted an USD $843.4 million trade surplus. In the first three months of this year, Indonesia's trade balance now accumulated to an USD $1.07 billion surplus. Market participants will be pleased to see this balance as it eases pressures on the current account deficit.

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The government of Indonesia has been preparing strategies to face Japan's possible complaint to the World Trade Organization (WTO) about Indonesia's recently introduced export ban of mineral ore (UU Minerba No. 4 - 2009). A special team from Indonesia's Trade Ministry, headed by Gusmardi Bustami, has been set up to handle the dispute. Japan feels forced to bring the export ban case to the WTO because its industry is highly dependent on the supply of certain raw Indonesian commodities, particularly nickel.

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Head of Statistics Indonesia (Badan Pusat Statistik or BPS) Suryamin said that inflation in April 2014 is estimated to be low or will turn into deflation as food stockpiles in a number of regions are sufficient amid the peak of the harvest season. Suryamin based his estimation on BPS monitoring conducted from 17 April. The monitoring indicated that prices of the main food commodities (which include rice, chili, chicken meat, cooking oil as well as beef) are stable or even declining from the previous month.

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Concerns about the arrival of a new El Niño weather phenomenon have increased in recent weeks. A possible new El Niño cycle has a major impact on the global commodities market. El Niño - a weather phenomenon that occurs once every five years on average - involves periodical warm ocean water temperatures off the western coast of South America which can cause climatic changes across the Pacific Ocean. Its impact on harvests and the world varies; sometimes passing almost unnoticeable (such as in 2010) but it can also be felt worldwide.

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Palm oil ranks among the most important agricultural commodities of Indonesia as this country is the world’s biggest producer of palm oil. This implies that Indonesia generates important foreign exchange earnings from palm oil exports and is a source of income for millions of workers on the plantations.

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In March 2024 global cocoa prices reached record highs (even temporarily touching above USD $10,000 per ton). Considering Indonesia ranks among the world’s top cocoa bean producers it is certainly worthwhile to take a closer look at this issue.

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If we take a look at Indonesian companies that went public in 2023 (becoming listed companies on the Indonesia Stock Exchange, or IDX), we see a couple of companies focused on nickel production, or nickel smelting and refining that made their trading debuts in Indonesia.

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“After the nickel ore ban [imposed in January 2020], we focus on bauxite this year [2022]. And after bauxite, we will go for tin and copper. We have to dare to take these steps!”

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In recent times, commodities have been ‘hot’. The rebound in economic activity after the COVID-19 pandemic (in combination with disrupted supply and logistics chains) started a high commodity price cycle. This cycle that was subsequently strengthened by the Russo-Ukrainian war.

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The non-performing loan (NPL) ratio in Indonesia's mining and excavation sector has risen drastically over the past year. Moreover, there seems few room for an improvement of the NPL ratio in this sector on the short term because mining and excavation companies are expected to remain amid tough conditions in the remainder of the year. The NPL ratio is a key indicator for measuring bad loans.

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An interesting story was released on Bloomberg Markets Asia on Wednesday (29/03) about the sliding role of commodities in the Indonesian economy and the need for Southeast Asia's largest economy to find a new growth engine (or better: several new growth engines) that will take the country to economic growth levels of +7 percent year-on-year (y/y) as once pledged by Indonesian President Joko Widodo during his presidential campaign in 2014.

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It remains unclear whether Indonesia will revise the export ban that is stipulated by the 2009 Mining Law (Law No. 4/2009 on Mineral and Coal Mining) and is supposed to come into effect on 12 January 2017. The 2009 Mining Law stipulates a ban on the export of unprocessed and semi-processed ores from Indonesia. The regulation aims to boost development of the nation's smelting capacity, hence becoming an exporter of materials that are positioned higher up in the value chain while curbing Indonesia's current dependence on exports of raw materials.

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Vale Indonesia, Indonesia's largest nickel producer, is one of those mining companies that has been plagued by low commodity prices. Various securities companies have cut their recommendation for the purchase of Vale Indonesia's shares due to persistently low nickel prices. Net profit of Vale Indonesia is expected to decline by 50 percent (y/y) to USD $26 million in 2016 as the company's average nickel sales price is expected to fall 29.5 percent (y/y) to USD $6,848 per ton this year.

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The International Monetary Fund (IMF) expects Indonesia's economy to expand 4.9 percent year-on-year (y/y) in 2016, slightly up from a 4.8 percentage point (y/y) growth of gross domestic product (GDP) in 2015. On Tuesday (15/03) Luis Breuer, IMF Mission Chief for Indonesia, said the Washington-based lender projects limited growth (+0.1 percent) of Indonesia's private consumption this year. Regarding growth of investment and government spending in 2016, the IMF holds a more positive view. On the same day, the World Bank cut its forecast for Indonesia's 2016 GDP growth by 0.2 percent to 5.1 percent.

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