THE PROSPECT OF INDONESIA S ECONOMY 2015 AND 2016

Transcription

1 THE PROSPECT OF INDONESIA S ECONOMY 2015 AND 2016 Business Luncheon Indonesia Netherlands Association (INA) By Anthony Budiawan Jakarta, Financial Cub 8 September 2015 Page 1

2 INDONESIA S CURRENT ECONOMIC CONDITION Is it already at the bottom? Page 2

3 Indonesia s economic growth declining GDP growth continues to decline: Last two quarters below 5% However, the government estimates the economy in 2016 will grow 5.5% Why is the government so optimistic? Will consumption increase? Will investment increase? Will exports increase? Can government spending improve the economy? Page 3

4 Indonesia s economic growth declining GDP growth 2014: 5.02% Projection 2015: 4 times revised 5.8% (APBN) 5.7% (APBN-P) 5.4% (May 2015) 5.0% - 5.2% (July 2015) 4.5% growth (2015) is considered good Page 4

5 GDP growth 2015 Description Q Q Household Consumption 2.65% 2.56% Government spending 0.14% 0.18% Investment 1.40% 1.14% Inventory change and discrepancy statistics 0.14% -0.81% Growth from Domestic 4.33% 3.07% Export -0.13% -0.03% Import -0.51% -1.63% Net Export (export - import) 0.39% 1.60% GDP growth 4.72% 4.67% GDP growth from domestic Q1 2015: 4.33% Q2 2015: 3.07% GDP growth from international trade Q1 2015: 0.39% Q2 2015: 1.60% Export 2015 decrease Import 2015 decrease faster than export (Export import) contribute significantly to the GDP growth Indonesia s growth largely depends on imports performance If imports increase, the economic growth will be depressed Page 5

6 Rupiah continues to depreciate 2 Aug 2011 USD 1 = Rp 8, % 25 Aug 2015 USD 1 = Rp 14,067 What would be the value of Rupiah: Rp 15,000? Rp 16,000? What are the consequences of further decline in Rupiah to the economy? Page 6

7 Rupiah continues to depreciate Why Rupiah depreciate since 2011? Why Rupiah appreciate between ? Page 7

8 Rupiah and monetary policy of the FED 2015: Rupiah still depressed, uncertainty if the FED rate increase QE = Quantitative Easing: monetary policy used by the FED to stimulate US economy QE: creates new money to buy financial assets such as treasury notes and mortgagebacked securities Impact of QE: Net money inflow to EM economies, EM currencies up, inflationary: commodity prices up Page 8

9 Rupiah and monetary policy of the FED Average rate Exchange rate (Rupiah to USD) H2015 Average Rate 9,692 10,408 9,087 8,776 9,384 10,459 11,869 12,968 Change -7.38% 12.69% 3.42% -6.93% % % -9.26% Rupiah rebound in 2009, but in average still below the 2008 average rate Page 9

10 Impact of QE on commodity prices Palm oil average price (USD per metric ton) H2015 Average price , Change % 33.52% 26.03% % % -2.19% % Palm oil price in 2009 rebound, but in average still below 2008 price Page 10

11 Impact of QE on commodity prices Coal average price (USD per metric ton) H2015 Average price Change % 37.75% 22.72% % % % % Coal price in 2009 rebound, but in average still below 2008 price Page 11

12 Impact of QE on commodity prices Rubber average price (USD per pound) Rubber H2015 Average price Change % 90.12% 31.86% % % % -9.97% Rubber price in 2009 rebound, but in average still below 2008 price Page 12

13 Trade Balance and Current Account Trade balance deficit since : deficit USD 1.67 billion 2013: deficit USD 4.06 billion 2014: deficit USD 1.89 billion Surplus Non Oil & Gas < deficit Oil & Gas Fall of commodity prices Reduction in the deficit 2014 is attributed to the free fall of crude oil price in 2H 2014 Current Account until 2011: Surplus Current Account since Q4 2011: Deficit 2015: surplus USD 5.74 billion (7 months) Exports decrease, Imports decrease faster Declining oil price: reduce the deficit in Oil & Gas sector Page 13

14 Fundamental of Indonesia s economy The government tend to say that Indonesia s economic fundamentals are strong enough I would challenge that opinion: on what basis is Indonesia s economic fundamentals regarded as strong Indonesia s current economic condition is fundamentally weak: Current account deficit is chronic and therefore difficult to fight because it is structurally dependent on commodity prices, including oil price Balance of payment is dependent on the financial and capital accounts: capital inflow to Indonesia is mostly short-term in nature i.e. hot money Indonesia s industry structure is fundamentally weak: dependent on commodities, import of intermediary goods as well as capital goods, industrial goods less competitive than the neighboring countries Page 14

15 Dependent on commodity Indonesia s economy is increasingly dependent on commodities as a result of commodity boom in mid 2000s (1) FATS, OILS AND WAXES (2) MINERAL FUELS AND OILS (3) RUBBER AND RUBBER ARTICLES HS Description EXPORT (Million USD) FATS, OILS AND WAXES 10,227 15,624 12,220 16,312 21,655 21,300 19,225 21, MINERAL FUELS AND OILS 7,123 10,656 13,934 18,726 27,444 26,408 24,780 21, RUBBER AND RUBBER ARTICLES 6,249 7,637 4,913 9,373 14,352 10,475 9,394 7,100 TOTAL 3 COMMODITIES 23,598 33,918 31,066 44,411 63,452 58,183 53,399 49,217 SHARE OF EXPORT (%) 25.6% 31.4% 31.9% 34.2% 39.2% 38.0% 35.6% 33.7% Three groups of commodity contribute 39.2% of the total export in 2011 Further fall of commodity prices will hurt exports and the economy Page 15

16 Depreciation of Rupiah: good or bad? Exchange rate (Rupiah to USD) H2015 Average Rate 9,692 10,408 9,087 8,776 9,384 10,459 11,869 12,968 Change -7.38% 12.69% 3.42% -6.93% % % -9.26% Palm oil average price (USD per metric ton) H2015 Average price , Change % 33.52% 26.03% % % -2.19% % Coal average price (USD per metric ton) H2015 Average price Change % 37.75% 22.72% % % % % Rubber average price (USD per pound) Rubber H2015 Average price Change % 90.12% 31.86% % % % -9.97% Rupiah Depreciate: more Rupiah for exporters, the revenue in Rupiah does not drop as much as the drop of the revenue in dollar, it helps them stay in business The fall of commodity prices (partly) compensated by the fall of Rupiah Weak Rupiah helps reduce imports, restore trade balance Page 16

17 Indonesia s monetary policy Rupiah depreciates 22% from June 5, 2013 (Rp 9,856) to Dec 6, 2013 (Rp 12,020) Bank Indonesia s policy response: increase BI rate from 5.75% to 7.5% (in 5 months) Can the increase of BI rate prevent Rupiah from the depreciation? Rupiah is still depressed in 2014 Depressed Rupiah is good for exporters, good for the economy, Depressed Rupiah will reduce import and restore the deficit of trade balance Can the increase of BI rate fight the inflation? The 2013 inflation is a non-monetary inflation (i.e. cost push inflation), most likely cannot be solved with high interest rate High interest rate will hurt the economy, will reduce private consumption and investments Other countries reduce the interest rate to stimulate the economy Page 17

18 Government spending Indonesia GDP (Rp trillion) Description 1H H 2015 Change Consumption 2,927 3, % Government spending % Investment 1,638 1, % Inventory change and discrepancy statistics % GDP from domestic consumption 5,148 5, % Export Goods and Services 1,243 1, % Import Goods and Services 1,278 1, % Net Export (Export - Import) (35) 21 GDP 5,113 5, % Government spending 1H 2015 is 9.88% higher than 1H 2014 It is an illusion to expect government spending increases economic growth this year Page 18

19 Factors influenced Indonesia s economy Global economic condition, particularly China, will determine the global demand for Indonesian goods: weakening China s economy will depress exports The development of commodity prices will influence exports: a further fall of the prices will hurt exports and will hurt Indonesia s economy Indonesia s monetary policy: the current level of BI rate is too high to stimulate the economy, particularly private consumption, as well as the investment Government spending does not play a significant role in Indonesia s economic development: The most important thing is the total government spending, not the substitution between the expenditures The budget deficit is set to a maximum of 3% of GDP, the current level of budget deficit is approaching the maximum Page 19

20 Factors influenced Indonesia s economy The FED monetary policy has a major influence on the development of commodity prices and the exchange rate: increase in the FED rate could result in the net capital outflow from EM economies, including Indonesia, and the depreciation of Rupiah Page 20

21 OUTLOOK Page 21

22 Outlook (1) Sooner (2015) or later (2016) the FED will increase the FED rate: Rupiah will further depreciate: Rp 15,000 per USD is not surprising, Rp 16,000 per USD is not impossible Commodity prices will still depressed, especially if China s economic growth decrease, which most likely will happen Global economy is still weak, China s economic growth continues to decline Global demand for Indonesian product decrease, export decrease In response to the increase of the FED rate, I expect Bank Indonesia will increase, or hold, the BI rate: domestic economy will weaken, private consumption and investment will decrease AEC, ASEAN Economic Community, is in effective in 2016 If Indonesia cannot compete with the neighboring countries, import will increase, economy will decrease Page 22

23 Outlook (2) If further fall of Rupiah and further decline in export resulted in bankruptcies then Indonesia s economy will certainly go into recession Considering the above factors, I expect Indonesia s economic growth: 2015: 4.5% 2016: less than 4.5% Page 23

24 THANK YOU Page 24