INDONESIA ECONOMIC QUARTERLY MARCH 213 PRESSURES MOUNTING Jim Brumby, PREM Sector Manager & Lead Economist Paramadina Public Policy Institute, March 213 www.worldbank.org/id
MARCH 213 IEQ LAUNCH PRESENTATION Steady recent economic growth, but pressures mounting Strong performance can continue but will require policy progress in key areas More evidence on the need and scope for progress in these areas
INDONESIA S ECONOMY CONTINUES TO PERFORM WELL Real GDP growth, year-on-year 15 15 12 12 China 9 India Indonesia 9 3 Major Trading Partners Malaysia 3 USA Dec-29 Dec-21 Dec-211 Dec-212 Source: CEIC; World Bank Global Economic Prospects, January 213, and East Asia Update, December 212
MOUNTING PRESSURES 1. Investment growth cooling; public infrastructure lagging 2. Real sales and nominal GDP growth: moderating 3. External balances: no relief 4. Fiscal sector: burdened by energy subsidies 5. Poor and vulnerable households: slower pace of improvement
INVESTMENT GROWTH: MODERATING 8 Year-on-year growth Real fixed investment 14 12 4 1 2 8 4-2 Capital goods imports (3-month moving average) 2-4 Mar-9 Dec-9 Oct-1 Jul-11 Apr-12 Jan-13 Source: CEIC; World Bank staff calculations
EXTERNAL BALANCES: STILL UNDER PRESSURE, RECENTLY DUE ESPECIALLY TO OIL & GAS TRADE DEFICIT USD billion USD billion Non-oil and gas balance Oil and gas balance 4 3 2 1-1 -2 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Source: CEIC; World Bank staff calculations
EXTERNAL BALANCES: KEEPING THE NEED TO SUPPORT FDI AND PORTFOLIO FLOWS IN FOCUS USD billion USD billion Net direct investment Net portfolio Net other capital Current account Overall balance Basic balance 18 18 12-12 - -12-12 Dec-9 Dec-1 Dec-11 Dec-12 Source: CEIC; World Bank staff calculations
GROWTH OUTLOOK: MEASURED REAL FINAL SALES GROWTH DECLINING Year-on-year growth 1 1 8 4 2 8 4 2 Dec-4 Dec- Dec-8 Dec-1 Dec-12 Real final sales Real final domestic sales Real GDP Note: Real final (domestic) sales = Measured private consumption + government consumption + fixed investment + net exports (-net exports) Source: CEIC; World Bank staff calculations
GROWTH OUTLOOK: NOMINAL GDP GROWTH MODERATING Year-on-year growth 3 25 2 15 1 5 3 25 2 15 1 5 Dec-4 Dec- Dec-8 Dec-1 Dec-12 Real GDP Nominal GDP Source: CEIC; World Bank staff calculations
NOMINAL INCOME GROWTH: SLOWER IN 212 4, 3,5 USD per capita GDP per capita (constant 212 USD, LHS) IDR per capita (million) 4 35 3, 2,5 GDP per capita (current price IDR, RHS) 3 25 2, 1,5 1, GDP per capita (current price USD, LHS) 2 15 1 5 5 2 22 24 2 28 21 212 Source: CEIC; World Bank staff calculations
INFLATION: FOOD PRICE PRESSURES 8 4 Change in CPI from Dec 212 to Feb 213 (LHS) Change in CPI from Dec 212 to Feb 213 (RHS) 8 4 2 2 Green Chili Red Chili Garlic Onion Food inflation excl items* Source: CEIC; World Bank staff calculations Food inflation
ACHIEVING OFFICIAL POVERTY REDUCTION TARGETS WILL BE A STRETCH 2 18 1 14 12 1 8 4 2 Poverty rate, percent Change in Poverty rate, percent 2.5 Official Poverty (LHS) 2. RPJM Moderate Target RPJM High Target 1.5 1..5. -.5 Annual Change in Poverty -1. 25 2 27 28 29 21 211 212 213 214-1.5
FISCAL SECTOR: BURDENED BY INEFFICIENT SPENDING 211 Actual Audited 212 Preliminary Actual 213 Budget 35 IDR trillion IDR trillion 35 3 3 25 25 2 2 15 15 1 1 5 5 Personnel Material Capital Int. Payments Energy subsidy Social Source: MoF; World Bank staff calculations
MARCH 213 IEQ LAUNCH PRESENTATION Steady recent economic growth, but pressures mounting Strong performance can continue but will require policy progress in key areas More evidence on the need and scope for progress in these areas
NOTWITHSTANDING THE PRESSURES, STRONG PERFORMANCE AND PROGRESS CAN CONTINUE 211 212 213 214 Gross domestic product.5.2.2.5 Consumer price index 5.2 4.3 5.5 5.2 Budget balance 1.2 1.8 1.7 1.4 Major trading partner growth 3. 3.4 3.7 4. Note: CPI is annual average. Government figures for Budget deficit: 212 is preliminary outturn, 213 is approved Budget and 214 is from the 213 Draft Budget Financial Note Source: Ministry of Finance, BPS, Consensus Forecasts Inc., World Bank staff calculations
BUT THIS REQUIRES THAT POLICY ADDRESSES MOUNTING PRESSURES Investment: Sustain private investment by providing policy certainty; making ongoing improvements in regulatory framework Work to meet the public infrastructure investment challenge Trade and external balances: Focus on competitiveness rather than import restrictions Fiscal sector: Fuel subsidy reform Households: Food: focus on availability; redirect subsidies Timely responses tend to yield results
MARCH 213 IEQ LAUNCH PRESENTATION Steady recent economic growth, but pressures mounting Strong performance can continue but will require policy progress in key areas More evidence on the need and scope for progress in these areas
SUCCESSFUL MANUFACTURES RELY ON IMPORTS Value-added in manufactured goods exports Indonesia Domestic goods Domestic services Foreign goods Foreign services Other Transport eq. Electric eq. Machinery Basic metal Chemicals&mi Wood&paper TCF Food prod Mining Agriculture China 25 5 75 1 25 5 75 1 Source: OECD and WTO Trade in Value-Added (TiVA) statistics
FDI HAS ROOM TO INCREASE 8 Inbound FDI, percent of GDP 22-24 25-28 21-211 8 4 4 2 2 Source: CEIC; World Bank staff calculations
PUBLIC INFRASTRUCTURE NEEDS A FURTHER BOOST 1 of GDP Infrastructure investment to GDP (LHS) IDR trillion 5 8 4 Real spending (2 prices, RHS) 3 4 2 2 1 1995 1997 1999 21 23 25 27 29 211 Note: Real value calculated using investment GDP deflator Source: Infrastructure investment data as detailed in Box 5 of March 213 IEQ and World Bank staff calculations
TAP INTO THE POTENTIAL OF FAST URBANIZATION Ln GDP per capita (PPP, 25 prices) 5.5.5 7 7.5 8 8.5 9 9.5 55 55 Indonesia China Per capita GDP against urbanization rates 45 45 Philippines 35 India Thailand 35 25 Vietnam 25 Agglomeration areas in Indonesia 15 15 Source: Indonesia: The Rise of Metropolitan Regions. The World Bank (212)
SUMMARY: MARCH 213 IEQ PRESSURES MOUNTING This edition of the IEQ contains analysis on: Fiscal policy analysis of the 212 Budget outturn Trade dynamics insights from new trade in value added data for Indonesia Urbanization harnessing the potential of agglomeration areas Infrastructure investment spending trends and the need for more Key messages: Steady recent economic performance with base case for this to continue But there are some mounting pressures and the risks to the economy are to the downside Timely policy responses tend to yield good results