Development of recent economic conditions

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Dr. Eric Alexander Sugandi Senior Economic Researcher at the Institute of Strategic Studies, Universitas Kebangsaan Republik Indonesia

IO – Development of the Global Economy
On Thursday, November 7, 2019, the Chinese and United States governments separately reported that their two nations had reached a preliminary agreement to resolve the ongoing trade war.

However, there have not been official trade agreement documents signed. If the trade agreements to stop the trade war have been truly reached, then the two nations would step by step and simultaneously cancel tariffs put on each other.

Global financial market participants have reacted positively to this announcement, but still anticipate the risk of a trade agreement between the two countries not being reached.

The International Monetary Fund (IMF) has stated that the trade war between the United States and China has slowed the pace of global economic growth by 1 percentage point (ppt).

The IMF estimates that global economic growth will slow from 3.6% in 2018 to 3.0% this year. Slowing economic growth in the United States and China has had a negative effect on Indonesia’s export performance, because both countries are main export destinations for Indonesian goods.

National Economic Development
BPS-Statistics Indonesia has announced that the Indonesian economy grew by 5.02% year on year (YoY) or 3.06% quarter on quarter (QoQ) in the third quarter of 2019 (Q3-2019), lower than the growth in Q2-2019 of 5.05% YoY (4.20% QoQ).

In terms of business, the manufacturing sector is the main source of economic growth in Indonesia, followed by the trade and repair sector and the construction sector.

On the demand side, household consumption is the main driver of economic growth, followed by the formation of gross fixed capital (a component of investment).

The Indonesian National University Institute of Strategic Studies (IKS) estimates that economic growth throughout 2019 will be 5.0%, lower than the government’s target of 5.3%. The global economic slowdown, depressed household consumption due to weakening purchasing power, and the continued slow growth of investment are the causes of the government’s economic growth target not being achieved this year.

IKS estimates that the Indonesian economy will still grow at 5.0% in 2020, amid a risk of a continuing trade war between the United States and China and the weakening of people’s purchasing power, due to inflationary pressures from the administered prices component (including base electricity tariffs and BPJS dues which are planned to increase next year).

Bank Indonesia (BI) has announced that Indonesia’s balance of payments (BOP) suffered a deficit of USD 46 million in Q3-2019, but this figure was much smaller than the deficit in Q2-2019 of USD 2.0 billion.

The reduced deficit in the BOP was mainly due to the reduced current account deficit from USD 8.2 billion in Q2-2019 to 7.7 billion dollars in Q3-2019, and the increase in the capital and financial account surplus (financial and capital account) from USD 6.5 billion to USD 7.6 billion.

IKS estimates that the balance of payments for the whole of 2019 will be in a surplus of USD 2.2 billion (0.2% of nominal GDP), compared to a deficit of USD 7.1 billion in 2018 (-0.7% of nominal GDP).

GLOBAL ECONOMIC INDICATORS Economic Review

  2015 2016 2017 2018 2019 2020
Global economic growth (%)   Spot price of crude oil (Brent, USD pbl, year-end)   US Treasury bond yield 10-year tenor (%, end of year)   S&P 500 Index (akhir tahun) 3.4   37.7     2.3     2.044 3.4   54.1     2.4     2.239 3.8   64.2     2.4     2.674 3.6   56.5     2.7     2.507 3.0*   —     —     — 3.4*   —     —     —

Source: IMF, US Treasuries, US Federal Reserves

Notes: *= IMF projected figures

INDONESIA ECONOMIC AND SOCIAL INDICATORS

  2015 2016 2017 2018 2019 2020
Gross Domestic Product (GDP) Economic growth (%) nominal GDP (USD billion) nominal per capita GDP (USD)   Inflation Inflation at end of year (%) Average inflation in a year (%)   Reference interest rate (year-end position) BI Rate (%) BI 7-day Reverse Repo Rate (%)   Rupiah Exchange Rates per US Dollar (JISDOR) Exchange rates per year end The average exchange rate in a year   Financial Market (year-end position) Yields on 10-year tenor (%) CSPI Indonesian Stock Exchange   Balance of Payments (% terhadap PDB nominal) Neraca transaksi berjalan Neraca modal dan finansial Selisih perhitungan bersih Neraca pembayaran secara keseluruhan   Cadangan Devisa (USD milyar) Defisit APBN (% terhadap PDB nominal) Indikator Sosial dan Kesejahteraan Populasi penduduk (juta orang) Tingkat pengangguran terbuka (%) Persentase    penduduk    miskin (thd.    total populasi) Indeks Gini Indeks Pembangunan Manusia   4.9 861 3,368     3.4 6.4     7.50 —     13,795 13,392     9.0 4.593       -2,0 2,0 -0,1 -0,1   106   2,6     256 6,2   11,1   0,329 69,6   5.1 932 3,606     3.0 3.5     — 4.75     13,436 13,307     8.0 5.297       -1,8 3,2 0,0 1,3   116   2,5     258 5,6   10,7   0,316 70,2   5.1 1.015 3,885     3.6 3.8     — 4.25     13,548 13,384     6.3 6.356       -1,6 2,8 -0,1 1,1   131   2,5     261 5,5   10,1   0,320 70,8   5.2 1.022 3,871     3.1 3.2     — 6.00     14,481 14,250     8.0 6.194       -2,9 2,4 -0,1 -0,7   121   1,8     264 5,3   9,7   0,319 71,4   5.0# 1.100# 4,120#     3.0# 3.1#     — 5.00#     13,900# 14,050#     6.8# 6.200#       -2,7# 2,9# 0,0# 0,2#   130#   2,1#     267 5,3 # 9,4 0,318# —   5.0# 1.200# 4,450#     3.4# 3.2#     — 4.25#     14,200# 14,200#     6.2# 6.400#       -2,6# 2,7# 0,0# 0,1#   137#   2,0#     270* 5,3# 9,4# 0,320# —

Source: Bank Indonesia, Ministry of Finance RI, IMF Notes: * = IMF projected figures

# = IKS projected figures