In line with expectations, the government of Indonesia revised down its economic growth target in 2016 from 5.3 percent (y/y) to 5.1 percent (y/y) amid subdued private consumption, slower-than-expected private investment, and low commodity prices. Meanwhile, the World Bank also cut its forecast for Indonesia's economic growth in 2016 to 5.1 percent (y/y), down from its earlier prediction of 5.3 percent (y/y). The World Bank also slashed its outlook for global growth from 2.9 percent (y/y) to 2.4 percent (y/y) this year.

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On 22 May 2016, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website over the last seven days. Most of the topics involve economic matters such as revisions made to the economic growth forecasts for Indonesia in 2016 and 2017, the trade balance, batik industry, infrastructure, rupiah & stocks, company updates, and much more.

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The government of Indonesia revised down its forecast for economic growth in 2017 to the range of 5.3 - 5.9 percent (y/y). On Friday (20/05) Indonesian Finance Minister Bambang Brodjonegoro informed parliament about the change in the growth outlook (related to the 2017 State Budget). Initially, the government projected Indonesia's 2017 GDP growth in the range of 5.5 - 5.9 percent (y/y). Brodjonegoro did not explain, however, why the government decided to revise down its GDP growth forecast in the 2017 State Budget.

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Slowly but surely Indonesia is obtaining the investment grade rating from the world's three key credit rating agencies. Fitch Ratings already reinstated Indonesia's investment grade rating in 2011, a step that was followed by Moody's Investors Service in 2012. Although Standard & Poor's (S&P) has been more careful, there emerged speculation that S&P will assign the investment grade status to Indonesia soon (perhaps in June 2016). Last week, a S&P team visited Indonesia - to study the country's latest policy reforms and developments - and signaled that its assessment is positive.

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Efforts to raise people's purchasing power and household consumption in Indonesia will be key to push for higher economic growth in 2016. According to the latest data from Statistics Indonesia (BPS), Indonesia's gross domestic product (GDP) growth reached 4.92 percent (y/y) in the first quarter of 2016. Although this result failed to meet analysts' projections (which generally stood around 5 percent y/y), it was higher than the 4.73 percent (y/y) economic growth pace that was posted in the same quarter one year earlier.

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According to the latest data from Statistics Indonesia (BPS) the unemployment rate of Indonesia fell to 5.5 percent of the nation's labor force, or 7.02 million people in absolute terms, in February 2016 (compared to an unemployment rate of 5.81 percent one year earlier). The data from BPS also indicate that Indonesia's workforce - remarkably - shrank from 128.3 million in February 2015 to 127.8 million people in February 2016 particularly due to a decline in workers in the agriculture sector.

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Economic growth of Indonesia was weaker-than-estimated in the first quarter of 2016. According to the latest data from Statistics Indonesia (BPS), released today (04/05), Indonesia's gross domestic product (GDP) growth reached 4.92 percent (y/y) in Q1-2016. Most analysts expected to see a GDP growth pace slightly above the 5 percent (y/y) mark and therefore the publication of BPS was disappointing and raises questions whether Indonesia's economic growth can in fact accelerate significantly in 2016.

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The stock performance of Indonesian companies listed on the Indonesia Stock Exchange (IDX) in 2016 is expected to be better than last year's performance. One of the factors that supports this assumption is Indonesia's accelerating economic growth. Most - if not all - analysts expect GDP growth to rebound from its six-year low of 4.79 percent (y/y) in 2015. Indonesia's Q4-2015 GDP growth at 5.04 percent (y/y) was already promising (supported by government spending). In 2016 a growth pace in the range of 5.0 - 5.2 percent (y/y) should be possible. Although the link is not perfect, there is a correlation between a nation's stock market and its GDP growth.

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Credit disbursement in Indonesia's banking sector grew at its slowest pace in six years in the first quarter of 2016. This weak performance is attributed to the slowdown in the country's real sector. Muliaman D. Hadad, Chairman of Indonesia's Financial Services Authority (OJK), said credit expansion grew 10 percent (y/y) to IDR 4,084 billion (approx. USD $300 billion) in Q1-2016. However, Hadad remains optimistic that credit expansion will accelerate in the second half of the year in line with forecasts for accelerating GDP growth. This will be a better context for businesses to expand.

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On 17 April 2016, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website over the last seven days. Most of the topics involve hot topics and economic matters such as an update on GDP growth, Bank Indonesia's new benchmark monetary tool, the palm oil sector, the coal price, the trade balance, an excise tax on plastic items, and more.

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It was decided at the Board of Governors’ meeting (RDG) of Bank Indonesia on 12 September 2013 to raise the BI Rate by 25 bps to 7.25%, the rate on the Lending Facility by 25 bps to 7.25% and the rate on the Deposit Facility by 25 bps to 5.50%. This action forms part of the follow-up measures taken to reinforce the policy mix instituted by Bank Indonesia, which focuses on controlling inflation, stabilizing the rupiah exchange rate and ensuring the current account deficit is managed to a sustainable level.

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According to data from the Indonesian Cement Association (ASI), domestic cement sales have fallen 5.8 percent to 3.3 million tons in August 2013 (from the same month last year). Being an important indicator of economic expansion (as cement sales inform about the development of property and infrastructure projects in the country), these lower cement sales confirm the slowing pace of economic growth in Indonesia. Compared to July 2013, cement sales in Indonesia fell by a massive 32 percent.

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In its most recent report regarding Indonesia's economy, the World Bank states that high logistic costs form a serious impediment to the country's economic growth. The report, titled Annual Logistics Report, is compiled by Bandung Institute of Technology’s Research Center for Logistics and Supply Chains, the Indonesian Logistics Association (ALI), the STC Group, Panteia Research Institute, and the World Bank Indonesia Office. The report provides an analysis and overview of the progress made in tackling the problem of logistics in Indonesia.

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In recent years, Indonesia's car sales have shown robust growth, culminating in a record high number of 1.12 million sold car units in 2012. This is an important statistic because car sales inform us about the state of the economy. Generally, rising car sales indicate an expanding economy while declining car sales indicate that the economy is slowing down. When we take a look at the table below, there is a link visible between Indonesia's GDP growth and rising car sales, except for 2011 to 2012 when GDP growth declined while car sales rose.

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Although many global indices were up, Indonesia's benchmark stock index (IHSG) fell a total of 2.93 percent during last week's trading. One important issue on global indices is the tapering off of the Federal Reserve's quantitative easing (QE3). On 17 and 18 September, the next meeting of the FOMC is scheduled, which is expected to discuss the future of QE3. Notably, as the meeting comes closer, most global indices in fact rise. Thus, market players seem to have become less concerned about an end to QE3.

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In recent weeks, Indonesia has to cope with a large amount of negative publicity as large capital outflows from the country's financial markets occurred, partly due to weak economic results regarding the current account balance, inflation and the the rupiah. Interest rates are rising, thus eroding people's purchasing power and consequently curbing economic growth. However, the Global Competitiveness Index 2013-2014, released by World Economic Forum, contained a positive outcome for Southeast Asia's largest economy.

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According to global credit rating and research agency Fitch Ratings, Indonesia's major banks are robust against the rupiah currency slide due to their low unhedged foreign currency exposure, strong loss-absorption cushions and - in some cases - foreign ownership. The slowdown in the economy will weigh on these (rated) banks' operating environment, but is unlikely to damage their credit profiles to any great extent. Below we provide Fitch Ratings' report. This report can also be accessed on their website.

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The government of Indonesia has revised the macroeconomic assumptions that are stated in the State Budgets (APBN) of 2013 and 2014 after a meeting with the budgetary body of the House of Representatives (Badan Anggaran DPR) on Wednesday (28/08). It is the third time that the 2013 State Budget has been revised in order to put it more in line with recent global developments. As the government was also too optimistic when drafting the 2014 Budget, it felt the need for a revision (only 12 days after the announcement of the Budget).

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Although Indonesia is one of the victims of the reversal of investment flows from emerging markets to developed markets, it is still far from a crisis. Global uncertainty regarding the possible ending of the Federal Reserve's monthly USD $85 billion bond-buying program (QE3) and, to a lesser extent, the possible invasion of the US in Syria have worried investors and resulted in the withdrawal of funds from emerging markets. Funds are flowing back to western developed countries that have recently been showing signs of continued economic recovery.

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Indonesia's current account deficit, which caused much alarm among the investor community, is expected to ease to about 2.5 percent of gross domestic product (GDP) in the second half of 2013. This assumption is supported by Indonesia's central bank and various analysts. The country's current account deficit reached USD $9.8 billion or 4.4 percent of GDP in Q2-2013. In combination with the weakening rupiah, higher inflation and the possible end to the Federal Reserve's quantitative easing program, investors have been pulling money out of Indonesia.

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