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Christine Lagarde, Managing Director of the International Monetary Fund (IMF), will arrive in Indonesia (Jakarta) today (01/09) to participate in the two-day conference titled ‘Future of Asia’s Finance: Financing for Development 2015’, organized by the IMF and Indonesia’s central bank (Bank Indonesia). Contrary to recent rumors, Lagarde's visit is not related to Indonesia seeking a new loan from the IMF.
Agus Martowardojo, Governor of Indonesia’s central bank (Bank Indonesia), said on Thursday (27/08) that the nation’s economic growth pace is expected to reach 4.89 percent (y/y) in full-year 2015, down from 5.0 percent (y/y) in the preceding year and it would mark the fifth straight year of economic slowing. Earlier this week, Bank Indonesia had already revised down its economic growth forecast to the range of 4.7 - 5.1 percent (y/y) in 2015 (from 5.0 - 5.4 percent previously).
Through capital injections the Indonesian government aims to enhance the role of various state-owned enterprises (SOEs) within the process of economic development. In the recently unveiled 2016 State Budget draft, which still requires approval from Indonesia’s House of Representatives, the government allocated a total of IDR 48.2 trillion (approx. USD $3.6 billion) to 24 SOEs in five priority sectors: food security, infrastructure & maritime development, energy security, strategic industry development, and national economic autonomy.
On Friday (14/08) the Indonesian government unveiled its 2016 State Budget draft at a session in the House of Representatives (DPR). The draft is important as it shows government targets regarding the macroeconomy of Indonesia and it shows on what fields the government will focus in terms of public spending. The government - led by Indonesian President Joko Widodo - is optimistic that economic growth will finally rebound after four years of slowing economic growth as its 2016 GDP growth target was set at 5.5 percent (y/y).
As Indonesia’s economic growth continued to slow in the second quarter of 2015, the Indonesian Employers Association (Apindo) warned of increasing unemployment in Southeast Asia’s largest economy. Each 1 percent gross domestic product (GDP) growth can generate between 200,000 and 300,000 new jobs in Indonesia. As such, when economic growth slows, society misses out on new jobs and with around two million Indonesians entering the labor force each year, job generation is an important task of the government.
In response to the release of Indonesia’s official Q2-2015 GDP growth figure, which puts the country’s economic growth pace at 4.67 percent year-on-year (a six-year low), President Joko Widodo said the economy of Indonesia is bound to improve in the second quarter of the year, particularly from September onwards. Widodo said slowing economic growth was the result of troubled government budget absorption at both the central level and regional level. Moreover, the country has been plagued by external factors.
Statistics Indonesia (BPS) announced today (05/08) that the Indonesian economy grew 4.67 percent (y/y) in the second quarter of 2015, the slowest pace since 2009. However, the result was in line with expectation. Most analysts assumed that economic growth would continue to slow as there has been no rebound in global commodity prices, interest rates remained high, people’s purchasing power weakened, government spending remained problematic, companies Q2-2015 earnings reports were not too good, and manufacturing contracted.
Once again, the Indonesian rupiah depreciated beyond the IDR 13,500 per US dollar level on Wednesday (05/08), touching its weakest level since the Asian Financial Crisis (which began as a financial crisis but would soon develop into a deep economic, political and social crisis in Indonesia) in 1997-1998. For some Indonesian policy makers, business players and investors the current weak rupiah therefore brings back bad memories. However, there are significant changes between conditions now and those in 1997-1998.
There are still persistent external and internal factors that make it difficult for Indonesian stocks to rise. By 12:07 am local Jakarta time, Indonesia’s benchmark stock index (Jakarta Composite Index) was down 0.25 percent to 4,788.37 points. Meanwhile, the rupiah had appreciated 0.36 percent to IDR 13,462 per US dollar by the same time according to the Bloomberg Dollar Index. What are the external (foreign) and internal (domestic) factors that influence the performance of Indonesian assets on today’s trading day (04/08)?
The pace of economic growth of Indonesia is expected to remain below five percent year-on-year (y/y) in the second quarter of 2015 according to Reuters poll involving 22 analysts. In fact, the poll shows that further slowing economic growth is expected. In the first quarter of 2015, Indonesia’s economic growth came at 4.71 percent (y/y), the weakest growth pace in six years. According to the poll, analysts see a gross domestic product (GDP) growth rate of 4.61 percent (y/y) in the second quarter of 2015.
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There are doubts whether Indonesia's gross domestic product (GDP) growth can reach 5.2 percent year-on-year (y/y) in full-year 2018 as Indonesia is experiencing a couple of major challenges. Challenges include the global trade war, the fragile rupiah, Bank Indonesia's higher benchmark interest rate, the current account deficit, and political tensions ahead of the 2019 legislative and presidential elections. Currently, Indonesia Investments' forecast for Indonesia's economic growth is set at 5.2 percent (y/y) in 2018.
There are signs that household consumption in Indonesia is rebounding ahead of this year's Idul Fitri holiday. This would be a great boost for Indonesia's overall economic growth as private consumption accounts for around 57 percent of the nation's total economic growth. One of the reasons why Indonesia's gross domestic product (GDP) growth has been stuck around the 5 percent (y/y) mark in recent years is subdued household consumption (which has fallen slightly below the 5 percent y/y mark).
The World Bank revised down its economic growth projection for Indonesia from 5.3 percent year-on-year (y/y) to 5.2 percent (y/y) for full-year 2018 amid the complex external environment: tightening monetary conditions, a potential global trade war, financial volatility, and geopolitical concerns. Such external factors put pressure on Indonesia's export performance, hence on domestic economic growth.
In the April 2018 edition of its East Asia and Pacific Economic Update, the World Bank is cautiously optimistic about economic growth in developing East Asia and Pacific (EAP). After a better-than-expected global economy in 2017, growth in developing EAP is expected to remain stable in 2018, reflected by solid prospects in Thailand and several commodity exporters, notably Indonesia. Domestic demand is estimated to remain robust in most of the region's economies and continue to underpin growth in 2018 and beyond. However, with economies operating close to their potential, price pressures are expected to rise.
The World Bank released the latest edition of its flagship publication Indonesia Economic Quarterly on Tuesday (27/03). The March 2018 edition of the report is entitled "Towards Inclusive Growth". In the report the World Bank is positive about Indonesia's economic outlook after seeing the nation's real gross domestic product (GDP) growth picking up at 5.2 percent year-on-year (y/y) in the fourth quarter of 2017 (accelerating from 5.1 percent y/y in the previous quarter).
At a special occasion at the Presidential Palace in Jakarta, Indonesian President Joko Widodo urged local banks to become more aggressive in terms of lending as credit disbursement in Indonesia's banking sector only reached IDR 4,782 trillion (approx. USD $349 billion) in 2017, hence growing by only a modest 8.3 percent year-on-year (y/y), thus unable to provide an optimal boost to domestic economic growth.
Rating and Investment Information, Inc (R&I), a Japan-based provider of credit ratings, investment appraisal and information services, announced that it has upgraded Indonesia's sovereign credit rating from BBB- (positive outlook) to BBB (stable outlook) per 7 March 2018. Last December, Fitch Ratings had already upgraded Indonesia's long-term foreign- and local-currency issuer default ratings to BBB (stable outlook), from BBB- previously.
In full-year 2017 the Indonesian economy expanded 5.07 percent year-on-year (y/y). Indonesia's Statistics Agency (BPS) announced on Monday morning (05/02) that the nation's gross domestic product (GDP) growth reached 5.19 percent (y/y) in the fourth quarter of 2017. These figures show a mixed picture.
In the World Bank's January 2018 edition of its Global Economic Prospect (GEP) report, released earlier this week, Indonesia's economic growth is considered stable at 5.3 percent year-on-year (y/y) in the 2018-2020 period. Although compared to emerging peers in the Asian region, a 5.3 percent growth pace is not too impressive, the positive message from the GEP report is that - contrary to many emerging Asian peers - Indonesia is not expected to see sliding economic growth in the years ahead.
In line with expectations, the central bank of Indonesia (Bank Indonesia) left its benchmark interest rate unchanged on Thursday (16/11). The seven-day reverse repurchase rate (BI 7-day Reverse Repo Rate) was kept at 4.25 percent for a second straight month. Meanwhile, the deposit facility and lending facility rates were kept at 3.50 percent and 5.00 percent respectively.
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