INDONESIA RENDEZVOUS 2018 ECONOMIC OUTLOOK : THE YEAR AHEAD FOR INDONESIA Azka Subhan A. Deputy of Director to Bank Indonesia Representative Office for Bali Province Bali, October 25, 2018
Slide 1 JBW1 Economic and Monetary Policy Department Juli Budi Winantya, 10/4/2018 DAKBDD1 done Dewa Ayu Komang Bintari Dewi Darmaputri, 10/4/2018
RECENT ECONOMIC DEVELOPMENT Global Domestic AGENDA ECONOMIC OUTLOOK
RECENT ECONOMIC DEVELOPMENT Global Domestic AGENDA ECONOMIC OUTLOOK FINANCIAL MARKET DEVELOPMENT AND THE ROLE OF INSURANCE
GLOBAL ECONOMIC UNCERTAINTY HEIGHTENED AMID UNEVEN ECONOMIC GROWTH US economy remains strong while Euro Area, Japan & China tend to decline. Global uncertainty is increasing, caused by the Fed Fund Rate (FFR) hike, trade tensions between the US and its trading partners, and the spreading risk of economic turmoil in Turkey and Argentina. THE IMPROVEMENT OF THE WORLD ECONOMIC GROWTH WAS DRIVEN BY THE STRENGTH OF THE US ECONOMY US INTEREST RATES RISE WHILE OTHER COUNTRY'S INTEREST RATES ARE LOW... 4 Trillion USD Source : WEO July 2018 US BUDGET DEFICIT CONTINUES TO INCREASE... 2.0 Source : Bloomberg, WIRP calculated USD STRENGTHENING OF THE WORLD CURRENCIES WIDELY... 1.8 Trump Tax Reform 1.6 1.4 CBO Baseline Deficit 1.2 0.17 1.0 0.16 0.8 0.29 0.00 0.18 0.42 0.6 0.4 0.67 0.63 0.72 0.56 0.2 0.97 1.11 0.0 2017 2018 2019 2020 2021 2022 Source : Congressional Budget Office, USA Source : Bloomberg, calculated Data as of October 2, 2018
ENCOURAGE FOREIGN CAPITAL OUTFLOW & BROAD-BASED USD APPRECIATIONS 5 USD COMPOSITION IN EM PUBLIC DEBT WENT UP.. CAPITAL FLEW OUT OF EM... Source: Bloomberg, calculated Data as of 2 October 2018 STOCK MARKETS ALSO WEAKENED... Source : IIF YIELDS PICKED UP... YTD 2018 Source : Bloomberg, calculated Data as of October 2, 2018 Source : Bloomberg, calculated Data as of October 2, 2018
MONETARY POLICY CONTINUES TO TIGHTEN The risk of global economic uncertainty triggered monetary policy tightening by raising policy rates to attract foreign capital. 6 AE Rate Hike Current Rate 2015 2016 2017 2018 bps bps bps QI QII QIII* QIV** Euro Area 0.00% 0 5 0 USA 2.25% 25 25 75 Dec 18 UK 0.75% 0 25 25 Japan 0.10% 0 20 0 Canada 1.50% 50 0 50 Oct 18 Australia 1.50% 50 50 0 New Zealand 1.75% 100 75 0 Sweden 0.50% 35 15 0 Oct 18 Norway 0.50% 50 25 0 Dec 18 2019** First Depo Rate Hike EM Mexico 7.75% 25 250 125 Turkey 24.00% 75 50 0 975 bps 6 China 2.55% 185 0 25 5 bps Thailand 1.50% 50 0 0 South Korea 1.50% 50 25 25 Oct 18 Malaysia 3.25% 0 25 0 Philippines 4.00% 0 100 0 50 bps 50 bps India 6.50% 125 50 25 South Africa 6.50% 50 75 25 Source : ING, Goldman Sachs, HSBC, ANZ, diolah *Data as of September 22, 2018 **projected 6
RECENT ECONOMIC DEVELOPMENT Global Domestic AGENDA ECONOMIC OUTLOOK FINANCIAL MARKET DEVELOPMENT AND THE ROLE OF INSURANCE
DOMESTIC ECONOMY IS EXPECTED TO REMAIN STRONG In2017,GDPgrowthisthehighestgrowthinthelast4years.IntheQ2 2018, GDP growth was recorded at 5.27% (yoy), the fastest since 2013. Growth was supported by strong domestic demand coming from private consumption and investment. Investment growth was driven by infrastructure projects as well as non buildinginvestment to expand productioncapacity. ECONOMIC GROWTH BY EXPENDITURE (%, YOY) Components 2016 2017 2018 2017 I II III IV I II Household Consumption 5.01 4.94 4.95 4.93 4.97 4.95 4.95 5.14 Non Profit Institution Serving Household (NPISH) 6.64 8.07 8.52 6.02 5.24 6.91 8.09 8.71 Government Consumption 0.14 2.69 1.92 3.48 3.81 2.14 2.74 5.26 Investment (GFCF) 4.47 4.77 5.34 7.08 7.27 6.15 7.95 5.87 Building Investment 5.18 5.87 6.07 6.28 6.68 6.24 6.16 5.02 NonBuilding Investment 2.43 1.46 3.23 9.47 9.03 5.90 13.57 8.41 Export 1.57 8.41 2.80 17.01 8.50 9.09 6.09 7.70 Import 2.45 4.81 0.20 15.46 11.81 8.06 12.66 15.17 GDP 5.03 5.01 5.01 5.06 5.19 5.07 5.06 5.27 *Source: BPS HOUSEHOLD CONSUMPTION ECONOMIC RECOVERY PATH (%, YOY) Source: BPS, calculated CAPITAL GOODS IMPORT 8 Source: BPS, calculated Source: BPS, calculated
BROAD-BASED ECONOMIC GROWTH Most of the regions recorded higher growth, with Sumatera, Kalimantan and Papua as the key drivers. Source: BPS, calculated 9
INDONESIA ECONOMIC EXPANSION PHASE IS EXPECTED TO CONTINUE Improved economic growth was mainly supported by domestic demand stemming from strong household consumption in line with fiscal stimulus, general election and solid investment, such as infrastructure. HOUSEHOLD CONSUMPTION GROWTH IS SUPPORTED BY IMPROVED INCOME... 10 HOUSEHOLD CONSUMPTION REMAINS STRONG ALSO SUPPORTED BY FISCAL STIMULUS... Source: BPS, calculated; *Data July August 2018 NPISH* IS EXCPECTED TO PICK UP IN LINE GENERAL ELECTION... Source: Financial Ministry. Data as of July 2018 INVESTMENT INCREASE AS THE IMPROVEMENT OF INVESTMENT CLIMATE & INFRASTRUCTURE DEVELOPMENT... Source: BPS, calculated * Non profit Institution Serving Household Source: BCI. Data as of July 2018
EXPORT GROWTH RESTRAINED WHILE IMPORT REMAINS HIGH Restrained export growth is driven by lower growth in trade volume and weak agricultural exports, amid improving manufacturing exports such as chemicals as well as iron and steel. Meanwhile, solid domestic demand has stimulated a surge in non oil & gas import, particularly in the form of capital goods, consumption goods, and raw materials. CONTRIBUTION OF OIL & GAS AND NON OIL & GAS EXPORT NON OIL & GAS EXPORT (REAL VALUE) 11 Source: BPS, calculated Source: Bank Indonesia CONTRIBUTION OF OIL&GAS AND NON OIL&GAS IMPORT NON OIL AND GAS IMPORT (REAL VALUE) % 30 20 10 0 Consumer Goods Raw Materials Capital Goods Others 6.17 24.5 % 30 20 13.01 10 4.72 0 10 10 Source: BPS, calculated 20 I II III IV I II III IV I II III IV I II III 2015 2016 2017 2018 Source: Bank Indonesia 20
Slide 11 JBW19 Grafik di sesuaikan as discussed Juli Budi Winantya, 10/4/2018 DAKBDD14 done Dewa Ayu Komang Bintari Dewi Darmaputri, 10/5/2018
INFLATION REMAINED WITHIN THE TARGET CORRIDOR OF 3.5±1% Inflation is expected to stay within the target on the back of maintained inflation expectations, adequate production capacity, limited impact of rupiah depreciation, and strong coordination between the Government and Bank Indonesia. INFLATION IS WITHIN THE TARGET RANGE AND STAYED WITHIN THE TARGET FOR 3 CONSECUTIVE YEARS... INFLATION EXPECTATIONS REMAIN ANCHORED IN THE INFLATION TARGET RANGE... 12 Source : Bank Indonesia THE IMPACT OF EXCHANGE RATE DEPRECIATION ON INFLATION IS LIMITED... INFLATION SEPTEMBER 2018 : 2,88% (YOY) Source : BPS, calculated Source: Bank Indonesia
REGIONAL INFLATION WAS KEPT UNDER CONTROL Most regions charted relatively low inflation. Lowest inflation was recorded in Maluku Papua (2.82%, yoy), Sulawesi (3.06%, yoy), and Sumatra (3.07%, yoy). 13 Source: BPS, calculated
RESERVE ASSET REMAINED HIGH Indonesia s official reserve assets at the end of September 2018 stood at USD114.8 billion, lower than August 2018 position at USD117.9 billions. The reserve asset position at the end of September 2018 was sufficient to cover 6.5 months of imports, or to cover 6.3 months of imports and to service government external debt, which is well above the international standard of three months. FOREIGN EXCHANGE RESERVES 14 Source : Bank Indonesia, calculated
Slide 14 JBW17 update angka september Juli Budi Winantya, 10/4/2018 DAKBDD13 done Dewa Ayu Komang Bintari Dewi Darmaputri, 10/5/2018
RECENT ECONOMIC DEVELOPMENT Global Domestic AGENDA ECONOMIC OUTLOOK FINANCIAL MARKET DEVELOPMENT AND THE ROLE OF INSURANCE
DOMESTIC ECONOMY PROSPECT Indonesia s economic growth in 2018 2019 remain solid albeit potential downside risk from external factors due to heightened global economic uncertainty. 16 GDP Inflation CAD Credit Deposit 2018 5.0-5.4% 3.5±1% 2.5-3.0% GDP 10-12% 8-10% 2019 5.1-5.5% 3.5±1% ± 2.5% GDP GDP Growth Fan Chart Inflation Fan Chart Source: Bank Indonesia Projection Source: Bank Indonesia Projection
INDONESIA'S ECONOMY REMAINS ON A STRONG FOOTING 17 Turkey Argentina South Africa Brazil Russia Thailand India China Indonesia 2017 Latest Read 2017 Latest Read 2017 Latest Read 2017 Latest Read 2017 Latest Read 2017 Latest Read 2017 Latest Read 2017 Latest Read 2017 Latest Read GDP (% yoy) 7,4 7,4 3,9 3,6 1,3 0,8 1,0 1,2 1,5 1,8 3,9 4,6 6,7 7,7 6,9 6,7 5,1 5,3 Inflation (% yoy) 11,9 24,5 24,8 34,4 4,7 4,9 2,9 4,2 2,5 3,1 0,8 1,33 4,3 3,69 1,8 2,3 3,6 2,88 Policy Rate (%) 8,0 24,00 28,75 65,0 6,8 6,5 7,0 6,5 7,75 7,50 1,5 1,5 6 6,5 4,4 4,35 4,3 5,75 CAD (% of GDP) 5,5 7,2 4,56 5,17 2,3 4,8 0,5 0,7 1,9 2,2 10,8 7,7 1,9 2,5 1,4 0,1 1,7 3 Foreign Exchange Reserves (USD Billion) Exchange Rate (% of change)* 106 128,6 50,11 46,13 51 50,39 374 381,3 432 460,6 203 204,5 409 401,8 3.236 3.109,7 130 114,8 7,4 37,0 14,73 51,1 11 14,1 1,8 18,2 5,4 11,9 9,2 0,5 6,1 12,4 6,3 5,2 0,7 9,8 Foreign Debt/GDP 53,2 36,2 48,8 15,1 12,6 32,7 20,5 14,0 34,8 Fiscal Deficit/GDP 1,5 3,9 3,3 7,8 1,5 2,7 3,5 3,7 2,5 *) data as of October 2 2018 Source: various sources
ECONOMIC RISKS 18 External Risks Widening divergence in global economic growth, tight monetary policy stance in emerging markets to offset US tight monetary policy Continuing broad based US dollar appreciation Increasing tensions in trade relations between the United States and its trading partner Capital flows from emerging markets to developed countries Slowing world trade volume and higher oil prices. Domestic Risks Widening current account deficit Continuing pressure on the Rupiah
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