Indonesia’s manufacturing activity continued to contract in June. It was the ninth consecutive month that the country’s manufacturing sector contracted. The Nikkei/Markit purchasing manager's index (PMI) rose slightly to 47.8 in June 2015 from 47.1 in May, implying that the sector contracted at a slower pace but remained well below the level of 50 that separates contraction from expansion. Contraction continued due to persistent declines in new orders and production. Meanwhile, inflationary pressures (7.26 percent y/y in June) persist.

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Indonesian authorities, i.e. the government and central bank (Bank Indonesia), announced or revised several macroeconomic assumptions for 2015 and 2016. Perhaps most importantly, Indonesia’s 2016 economic growth assumption has been revised down to the range of 5.5 - 6.0 percent (y/y), down from its previous assumption of 5.8 - 6.2 percent (y/y). Indonesian Finance Minister Bambang Brodjonegoro also stated that the government will assume the rupiah at IDR 13,000 - 13,400 per US dollar for the 2016 calendar year.

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Contrary to the performance of most other Asian stock indices, Indonesia’s benchmark Jakarta Composite Index fell 0.52 percent to 4,959.25 points on Monday (22/06). Other Asian markets were supported by renewed hopes of averting a Greek exit (Grexit) from the Eurozone after the debt-ridden country gave new proposals to its creditors in the Eurozone over the past weekend. According to the Greek government these proposals are mutually beneficial. Ahead of the ‘emergency’ meeting today, the euro and European stocks tend to rise heavily.

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Several international institutions revised down their outlook for economic growth of Indonesia in 2015 as foreign investors have been somewhat disappointed with the performance of the new Indonesian government, while the global economic picture remains far from rosy. Goldman Sachs, JPMorgan Chase, Credit Suisse and Nomura Holdings have all slashed Indonesia’s economic growth forecast this year to below the five percent (year-on-year) mark. Last year Indonesia’s economic growth touched a five-year low of 5.02 percent (y/y).

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The central bank of Indonesia (Bank Indonesia) revised down its economic growth outlook for Indonesia in 2015. In a meeting with the House of Representatives’ Budget Committee, Bank Indonesia Governor Agus Martowardojo said that Indonesia’s GDP growth is expected to reach 5.1 percent (y/y) this year. Previously, the central bank projected economic growth in the range of 5.4 to 5.8 percent (y/y). However, after seeing weak growth in the first quarter (4.71 percent y/y), projections had to be revised.

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In a meeting with Commission XI of Indonesia’s House of Representatives (DPR), Indonesian Finance Minister Bambang Brodjonegoro stated that the economy of Indonesia is currently facing four global risks. These four risks are low international commodity prices, China’s slowing economic expansion, the Greek debt crisis in the Eurozone and, lastly, further monetary tightening to be conducted by the US Federal Reserve. These issues are not new and have already contributed to slowing economic growth in Indonesia.

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In the latest report of the Organization for Economic Co-operation and Development (OECD) the institution emphasizes that gender equality in employment should be promoted by governments in order to combat income inequality and thus achieve not only a more just and harmonious society but also boost inclusive economic growth. In most countries gender equality remains a matter of concern. The report also states that governments should not ignore the importance of broadening access to jobs and encourage investment in education.

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After seeing the disappointing GDP growth figure of 4.71 percent (y/y) in the first quarter of 2015, investors have become concerned about Indonesia’s economic growth in the remainder of the year. The poor Q1-2015 GDP growth was caused by the country’s weak export performance (due to the sluggish global economy and low commodity prices), Indonesia’s high interest rate environment (curbing people’s purchasing power and business expansion of local companies), and sluggish government spending.

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Indonesia’s economic growth in the first quarter of 2015 was recorded at 4.71 percent (y/y). Although it had been expected that Indonesia’s GDP growth figure would slip below the five percent mark, the slowdown was worse than initially expected. Suryamin, Head of Statistics Indonesia (BPS), stated earlier today (05/05) that the country’s economic growth slowed to a five-year low on the back of weak exports (the result of reduced economic growth in export markets) and lower crude oil prices.

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On 19 April 2015, 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 in the last seven days. Most of the topics involve economic matters such as an update on Bank Indonesia’s interest rate policy, the performance of the rupiah, the March trade balance, updates on coal, palm oil, cement and car sales, GDP growth forecast, alcohol in Indonesia, and more.

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After two years in office, the time is ripe now to take a look at the performance and accomplishments of the government under the leadership of Joko Widodo, often called Jokowi. Indonesia's seventh president was a bit unlucky. In the first year of his rule, commodity prices were at multi-year lows (curbing Indonesia's foreign exchange earnings) amid sluggish global economic growth, while capital outflows from Indonesia occurred on the back of monetary tightening in the USA, sending the rupiah to a 17-year low in September 2015.

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The central bank of Indonesia (Bank Indonesia) has become slightly less optimistic about Indonesia's economic growth in the third quarter of 2016. Bank Indonesia revised down its growth projection to below the 5 percent (y/y) mark for Q3-2016 (from an earlier forecast of 5.2 percent). However, the lender of last resort still expects to see a better performance compared to the 4.73 percent (y/y) pace posted in Q3-2015. Meanwhile, low inflation and a strong rupiah could result in another interest rate cut in Southeast Asia's largest economy.

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In line with the performance of most stocks in Asia, Indonesia's benchmark Jakarta Composite Index plunged 1.66 percent to 5,281.92 points on Friday (09/09). Several matters brought negative market sentiments to Asia: the European Central Bank (ECB) seems unwilling to boost asset purchases, North Korea conducted its fifth nuclear test, while Indonesia's central bank announced that the nation's retail sales expanded at a slower pace in July 2016. Meanwhile, the Indonesian rupiah depreciated 0.34 percent to IDR 13,108 per US dollar (Bloomberg Dollar Index).

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After Indonesian Finance Minister Sri Mulyani Indrawati said she expects Indonesia's gross domestic product growth at 5.1 percent (y/y) in full-year 2016, Chief Economics Minister Darmin Nasution is slightly more optimistic. Nasution puts his GDP growth projection at 5.2 percent (y/y) this year despite the government's spending budget being cut by IDR 137.5 trillion. According to Nasution, rising investment realization should push economic growth to 5.2 percent (y/y), offsetting the negative impact of fewer state spending.

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Bank Indonesia cut its projection for credit growth in the nation's banking sector this year from the range of 10 - 11 percent year-on-year (y/y) to 7 - 9 percent (y/y). This downward revision is in line with the central bank's earlier decision to cut its forecast for economic growth from the range of 5.0 - 5.4 percent (y/y) to 4.9 - 5.3 percent (y/y) in 2016. The slightly less rosy outlook is caused by the Indonesian government's decision to cut spending for the remainder of the year, while global economic growth remains subdued.

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The central bank of Indonesia kept the BI seven-day reverse repo rate (7-day RR Rate) at 5.25 percent after its two-day August policy meeting (18-19 august 2016). At this policy meeting Bank Indonesia adopted the 7-day RR Rate as the nation's new benchmark monetary tool, replacing the BI rate that failed to influence markets significantly: despite the BI Rate having been cut from 7.50 percent to 6.50 percent so far this year, Indonesia's lending rates did not drop accordingly.

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A better-than-expected GDP growth figure in the second quarter of 2016 should not be a reason for Indonesia to become complacent. On the contrary, efforts to boost economic growth need to be continued. One of the keys to unlock accelerated economic growth is to optimize spending of government funds at the regional level. Alarmingly, some IDR 214.7 trillion (approx. USD $16.5 billion) of central government funds that are allocated to regional governments in the 2016 state budget are left untouched at bank accounts.

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The central bank of Indonesia (Bank Indonesia) expects Indonesia's inflation to reach slightly below 1 percent month-to-month (m/m) in July 2016. According to central bank surveys, Indonesia's inflation accelerated in the first and second week of July by 1.18 percent (m/m) and 1.25 percent (m/m), respectively. Juda Agung, Executive Director of Bank Indonesia's Economic and Monetary Policy Department, said inflation tends to peak ahead of - and during - the Idul Fitri holiday (4-8 July) but is set to ease in the third and fourth week.

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Bank Central Asia (BCA), the largest lender by market value and assets in Indonesia, is expected to benefit from Indonesia's tax amnesty program and improving economic growth of Southeast Asia's largest economy. CIMB Securities projects a 10 percent year-on-year (y/y) increase in loan growth in full-year 2016. However, this growth projection is slightly below BCA's loan growth realization one year earlier when it reached 12 percent (y/y). This slowing growth is attributed to lower demand for working capital credit and investment credit.

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The International Monetary Fund (IMF) announced on Tuesday (19/07) that it cut its forecast for global economic growth in both 2016 and 2017 by 0.1 percentage point to 3.1 percent (y/y) and 3.4 percent (y/y), respectively. The downward revision is the result of a "substantial increase in economic, political, institutional uncertainty" due to the exit of Britain from the European Union (the so-called "Brexit"). In fact, if there were no Brexit, the IMF would have made an upward revision to its 2017 economic growth outlook, according to a statement made on the IMF website.

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