ECONOMIC OUTLOOK 2016:

CLIMBING AMID THE TURMOIL

Faisal Basri
October 8, 2015

Part I
Slowed Growth

The rise and decline of Indonesian economy:

GDP growth 1961-2015 (%)

Weakening economic growth continued in 2015

Quarterly GDP growth, y-o-y, %
6.8
6.4 6.5 6.5 6.5
6.3
5.9

5.8

5.6

6.3 6.4

6.2 6.1
6.0
5.8
5.6

5.7
5.2

5.1
4.9

5.0
4.72 4.67

4.5
4.1

4.3

Source: BPS-Statistics Indonesia..

Economic growth by island: Kalimantan and

Sumatera suffered the most

2014: 4.7
2015: 3.5
(22.6)

2014: 3.2
2015: 1.1
(8.3)

2014: 5.6
2015: 5.2
(58.3)

2014: 6.9
2015: 7.3
(5.7)

2014: 5.9
2015: 8.9
(3.0)

2014: 4.3
2015: 3.7
(2.2)

Indonesia's main export commodity prices

continue to be depressed over the last 5 years

Commodity prices to stay weak in 2015

Source:
http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/0,,contentMDK:21574907~menuPK:7859231~pageP
K:64165401~piPK:64165026~theSitePK:476883,00.html

GDP growth by sector, percent

Low quality of growth, 2000-2015

The role of manufacturing industry

continued to decline

Growth of manufacturing industries, 2011-15

Indonesias economic growth has slowed.

Bank Indonesia made it slower
GDP, investment (gross fixed capital formation).and private
consumption growth, percent

13

GDP

12

Investment

Private consumption

11
10

9
8

7
6

5
4
3
Q2-12

Q3-12

Q4-12

Source: BPS-Statistics Indonesia.

Q1-13

Q2-13

Q3-13

Q4-13

Q1-14

Q2-14

Q3-14

Q4-14

Q1-15

Q2-15

Part II
Facing Global Turmoil

IMF cuts global growth forecasts again:

the world economic outlook, 2015-16 (%)
World GDP growth
Advanced economies
- United States
- Euro area
- Japan
Developing economies
- China
- India
- Asean-5
Indonesia
World trade growth
* Projection.
Sources: IMF, World Economic Outlook, October 2015.

2012

2013

2014

2015*

2016*

3.5
1.4
2.8
-0.7
1.4
5.1
7.7
4.7
6.2
6.2
2.8

3.4
1.4
2.2
-0.4
1.6
5.0
7.7
6.9
5.1
5.6
3.3

3.4
1.8
2.4
0.9
-0.1
4.6
7.3
7.3
4.6
5.0
3.3

3.1
2.0
2.6
1.5
0.6
4.0
6.8
7.3
4.6
4.7
3.2

3.6
2.2
2.8
1.6
1.0
4.5
6.3
7.5
4.9
5.1
4.1

US unemployment rate falls to 7-year low in August, but

employers added just 146,000 workers in September

A long term decline in US economic growth

(US GDP growth, %)
6

4
3
2

1
0
1930s

1940s

1950s

Source: US Bureau of Economic Analysis

1960s

1970s

1980s

1990s

2000s

2011-14

The Fed leaves interest rates unchanged

The Feds chairwoman, described
the decision as a close call and said
the central bank still expected to
raise interest rates later this year. The
Fed has kept its benchmark interest
rate close to zero since late 2008,
when the nations economy was at
the depths of crisis.
The recovery from the Great Recession has advanced sufficiently far
and domestic spending has been sufficiently robust that an argument
can be made for a rise in interest rates at this time, Ms. Yellen said at a
news conference on September 17, 2015.
But, she said, heightened uncertainties abroad, including the Chinese
economys weakness, had persuaded the bank to wait at least a few
more weeks for fresh data that might bolster its confidence in
continued growth.

Latest update
September Job Report: job growth weakens, shaped by
global turmoil:
Nonfarm payrolls in September only 142,000, far below the average
over 1 years of more than 200,000; August numbers was revised
sharly downward fro 173,000 to only 136,000.
A decline in wages in September.
Unemployment rate in September remained at 5.1%.

Global turmoil:
Chinas economic problem is worse than expected and it is crusing
other markets.

Now even Indias economy is slowing down.

Investors are pulling their money out of emerging markets in the
biggest outflow of capital since 1988. This year investors are on track
to pull $541bn out of emerging markets (Source: Money Trend$)

China in transition

Baltic dry index is also in declining trend

Part III
After the Fall of Oil Prices

Make the momentum of the fall in oil

prices to consolidate the economy

Crude oil prices projections

Monthly OPEC basket price has similar trend

following the average prices of Brent-WTI-Dubai

Oil trade deficit dropped sharply

(USD billions)

Monthly trade surplus is more likely sustainable,

taking place since December 2014

The annual trade account are very

likely to return surplus

inflation rate is expected to decline steadily

and stabilized at around 4%

Therefore, BI rate is very likely to decline,

at least in the early 2016

Healthy banking sector: CAR comfortably

high, low NPL, and favorable LDR

Indonesias economic resilience in

comparison: today versus pre-global crisis

Country ranking (2007, 2014)

Source: Liliana Rojas_Suarez, Emerging Market Economic Resilience to External Shocks: Today Versus Pre-Global Crisis, Center for Global Development, 24 February 2015.

The capital-freeze index, 2014

Indonesia is not entangled net capital outflow

Part IV
Lower Current Acount Deficit and
Positive Net Capital Inflows

The fall in oil prices reduced current account deficit

2008
2009
2010
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
2013
Q1
Q2
Q3
Q4
2014
Q1
Q2
Q3
Q4
2015
Q1
Q2

Current account
0.1 (0.0%)
10.6 (2.0%)
5.1 (0.7%)
1.7 (0.2%)
2.9 (1.5)
0.3 (0.1)
0.8 (0.3)
-2.3 (-1.1)
-24.4 (-2.6%)
-3.2 (-1.5%)
-8.1 (-3.7%)
-5.3 (-2.4%)
-7.8 (-3.6%)
-29.1 (-3.2%)
-6.0 (-2.6%)
-10.1 (-4.2%)
-8.6 (-3.7%)
-4.3 (-2.0%)
-27.5 (-3.1%)
-4.9 (-2.3%)
-9.6 (-4.3%)
-7.0 (-3.0%)
-6.0 (-2.7%)
-8.6 (-2.0%)
-4.1 (-1.9%)
-4.5 (-2.0%)

Non-oil and gas

15.1
25.6
27.8
34.5
8.9
10.6
9.3
6.6
13.9
4.7
2.0
4.0
3.2
15.5
4.4
1.5
2.7
6.8
18.8
6.1
2.8
4.7
5.2
9.9
3.9
5.9

Oil
-8.4
-4.0
-8.7
-17.5
-3.2
-5.8
-4.3
-4.2
-20.4
-5.3
-5.3
-4.2
-5.6
-22.5
-6.4
-5.1
-5.7
-5.4
-23.9
-6.0
-6.1
-6.0
-5.7
-6.8
-3.2
-3.6

Gas
16.1
9.4
11.9
16.9
3.6
4.4
4.7
4.2
15.2
4.4
4.2
3.4
3.2
12.8
3.5
3.0
3.0
3.2
12.1
3.3
3.0
2.9
2.9
3.5
1.9
1.5

Services
-13.0
-9.7
-9.8
-9.8
-1.8
-3.1
-2.6
-3.1
-10.6
-2.0
-2.8
-2.4
-3.2
-12.1
-2.6
-3.6
-2.8
-3.1
-10.0
-2.1
-2.8
-2.5
-2.6
-4.5
-1.8
-2.6

Primary income Secondary income

-15.2
5.4
-15.1
4.6
-20.7
4.6
-26.5
4.2
-5.5
1.0
-6.8
1.0
-7.4
1.0
-7.0
1.2
-26.6
4.1
-6.0
1.0
-7.0
0.9
-7.0
0.9
-6.6
1.3
-27.0
4.2
-6.0
1.1
-7.0
1.0
-6.8
0.9
-7.2
1.2
-29.7
5.2
-7.2
1.1
-7.9
1.5
-7.3
1.2
-7.2
1.4
-14.1
2.8
-6.7
1.4
-7.4
1.4

FDI and portfolio investment still

flowing to Indonesia
US$ billions

Direct investment (net)

Portfolio investment (net)

Total

45
41.1

40
35
30
26.1

24.3

25

22.9

23.1
20.5

20
15.3

15

13.0
10.3

13.2
11.1

11.5
9.2

10
5

3.4

14.6

12.2
10.9
5.9

5.2
1.8

16.0
13.7

3.8

2.6

2008
* January-June
Source: Bank Indonesia.

2009

2010

2011

2012

2013

2014

2015*

Indonesia has been 3 years in a row in the

Top 20 host economies for FDI
(x) = 2013 ranking
1. China (2)
2. Hong Kong (3)
3. United States (1)
4. United Kingdom (9)
5. Singapore (6)
6. Brazil (7)
7. Canada (4)
8. Australia (8)
9. India (15)
10. Netherlands (14)
11. Chile (21)
12. Spain (12)
13. Mexico (10)
14. Indonesia (19)
15. Switzerland (187)
16. Russian Federation (5)
17.Finland (185)
18. Colombia (22)
19. France (11)
20. Poland (148)

2014, Billions of US dollars

129
103
92
72
68
62

54
52
34
30
23
23
23

23
22
21
19
16
15
14

Source: UNCTAD, World Investment Report 2015, page 5.

Still attractive for medium term: TNCs top

prospective host economies for 2015-17
(Percentage of respondents selecting economy as a top destination,
(x)=previous survey ranking
1. China (1)
2, United States (2)
3. India (4)
4. Brazil (5)
5. Singapore (17)

Developing economies

6. United Kingdom (7)

7. Germany (6)

Developed economies

8. Hong Kong (-)

9. Mexico (13)
10. Australia (10)
11. Canada (-)
12. France (12)
13. Japan (15)
14. Indonesia (3)
15. Malaysia (15)
16. Russian Federation (10)

17. Republic of Korea (-)

0

10

Source: UNCTAD, World Investment Report 2015, page 26.

20

30

The Economist: Indonesia is the third

investment destination in Asia (2013)

First time climbing to the top in 2013,

Indonesia beats China in Japanese FDI

Investment attractiveness in Indonesia

is still very promising
In your opinion, which of the countries we are discussing
todayChina, India, or Indonesiahas the best investment
attractiveness?
36.3

China

58.2

Pool (After)

18.2

India

Pool (Before)

10.4

45.5

Indonesia
31.3

Pelindo II and Government bonds issuance

in comparison
Pelindo II

Government

Series I
Date
Nominal value
Tenor
Yield
Coupon rate

n.a.
Apr-15
USD 1.1 billion
10 years
4.375%
4.250%

RI 0124
Jan-14
USD 2.0 billion
10 years
5.950%
5.875%

Series II
Date
Nominal value
Tenor
Yield
Coupon rate

n.a.
Apr-15
USD 0.5 billion
30 years
5.500%
5.375%

RI 0144
Jan-14
USD 2.0 billion
30 years
6.850%
6.750

Stock index has a new record 12 times this year,

but continued pressure since the end of April

Global stock markets:

Indonesia was the best

Global stock markets: almost all countries

falling, Indonesia one of the worst

How long the pain will last?

Depreciation of rupiah should make exports more
competitive, but low commodity prices seem to be
offsetting that gain.
The falling of rupiah is also stoking inflation. Whenever
the Fed gets around to raising rates, these ailments will
presumably worsen.
Chinas slower growth and waning appetite for
commodities have also been a drag on Indonesia. China
is the top destination for exports from Indonesia.
Indonesias current-account deficit and the big share of
its government debt in foreign hands will make it
particularly susceptible to capital outflows in the event
of a rate rise in America.

Part V
Decline in Purchasing Power?

Purchasing power is determined by level

of income and price level
National income is not down:

Minimum wages always go up every year exceeds the inflation

rate

Salaries of civil servants, military/police (TNI/Polri), and

pensioners are also always rises above inflation rate.

The farmers terms of trade and the terms of trade of agricultural

household business are also increased in the last 4 months.

No prolonged price hikes for basic needs

A decline trend of inflation rate

Gasoline prices are much cheaper now than November 2014.

The government often implements price control measures

GDP growth by expenditure

2010 2011 2012 2013 2014 2015-1 2015-2
Private consumption

4.26

5.05

5.49

5.38

5.14

5.01

4.97

Non-profit private consumption

-3.7

5.54

6.68

8.18 12.43

-8.25

-7.91

General government consumption

Gross domestic fixed capital
formation

3.99

5.52

4.53

6.93

1.98

2.71

2.28

6.69

8.86

9.13

5.28

4.12

4.29

3.55

Exports of goods and services

15.28 14.77

1.61

4.17

1.02

-0.85

-0.13

Less imports of goods and services

16.58 15.03

1.86

2.19

-2.27

-6.85

6.03

5.58

5.02

4.72

4.67

Gross domestic product

Sources: BPS-Statistics Indonesia.

6.38

6.17

So, what actually happened?

Income rises, consumption rises but at slower pace
Uncertainties (IDR plunged continuously, the direction of
government policy are not clear, and external factors) to
encourage people and businesses more cautious.
Households and businesses to postpone the decision and
keep watch with more saving.
Delaying the purchase of durable goods such as automobiles,
motorcycles, electronics.
Reflected by the increase in third party funds
Third party fund portion in foreign currency increased.

Sagging loan growth; deposit growth has

been higher since September 2014
(year-on-year, percent)
25

Loans
Third Party Fund

20

15

14.6

10
9.7

Time deposit growth raced since June 2014,

on the contrary the growth of savings dropped
(year-on-year, percent)
30
25
20

15
10
5
0
-5

Time deposit

Demand deposit

Source: Bank Indonesia and Financial Services Authority (OJK).

Saving account

Total deposits (third party funds)

in commercial banks
5,000

(IDR trillions)

4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2011

2012

Time deposit

2013

Saving acount

* July
Source: Bank Indonesia and Financial Services Authority (OJK).

2014

Demand deposit

2015*

Deposits in foreign exchange rises despite low

interest rates: worry IDR continues to decline
(Composition, percent)
13.9

14.5

17.4

16.5

17.8

2011

2012

2013

2014

2015

IDR

Foreign exchange

Part VI
Some Positive factors Appear at the Same Time

Indonesia gains from regional dynamics

Exports & imports of motor vehicles: Indonesia is

competing with Thailand, becoming a production base
Value*
(US$ mil.)
Exports Imports

Unit**
(X-M)

Exports Imports

(X-M)

2011

3,328.6

7,602.8 -4,274.2 107,932

76,173

31,759

2012

4,856.9

9,757.0 -4,900.1 173,371 124,835

48,536

2013

4,567.3

7,915.0 -3,347.7 170,907 154,014

16,893

2014

5,213.7

6,253.5 -1,039.8 202,273 104,503

97,770

2015***

3,661.9

2,791.7

84,785

n.a 140,465

55,680

* Exports (fob) & Imports (cif) of vehicles other than railway (87).
** Exports and imports are CBU only.
*** January-August for export value; January-May for import value; January-August for unit.
Sources: BPS Indonesia for value and Gaikindo for unit.

Thousands

950
900
850
800
750
700
650
600
550
500
450
400
Jan'08
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan'09
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan'10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan'11
Feb
Mar
Apr
May
June
Jul
Aug
Sep
Oct
Nov
Dec
Jan'12
Feb
Mar
Apr
May
Jun
Jul
Aug
sep
Oct
Nov
Dec
Jan'13
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan'14
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan'15
Feb
Mar
Apr
May
Jun
Jul
Aug

10 million foreign visitors this year?

Visitors:
2012 = 8,044,462
2013 = 8,802,129
2014 = 9,435,411
2015* = 6,322,592

* January-August.
Source: BPS-Statistics Indonesia.

Growth:
2012 (yoy) =
2013 (yoy) =
2014 (yoy) =
2015* (yoy) =

5.16
9.42
7.19
2.71

Part VII
Economic Prospect 2016

Key business environment 2015-16

Dont underestimate the impact of El Nio

The latest forecast released on August 13, 2015 by National
Oceanic and Atmospheric Administration (NOAA)s Climate
Prediction Center, this year's El Nio is "significant and
strengthening."
El Nio is a warming of the eastern Pacific Ocean, mainly along
the Equator, which indicates waters that are warmer than
normal.
These warmer waters are normally confined to the western
Pacific by winds that blow from east to west, pushing the
warmer water toward Indonesia and Australia.
More rain in North and South America comes at the expense of
normally rainy Southern Asia and Australia, which become
abnormally dry and experience droughts.
Source: http://edition.cnn.com/2015/08/13/weather/el-nino-2015/index.html

Projections of GDP growth of

selected Asian countries

Projections of GDP growth by

several agencies
No Agency

Date

2013

2014

2015 2016

Govt of Indonesia

September 2015

6.0 (+0.2)

5.2 (+0.2)

5.2

Bank Indonesia

September 2015

5.7 (-0.1)

5.3 (+0.3)

4.9

IMF

October 2015

5.3 (-0.5)

5.2 (+0.2)

4.7

5.1

World Bank

October 2015

5.6 (-0.2)

5.1 (+0.1)

4.7

5.3

ADB

September 2015

5.7 (-0.1)

5.1 (+0.1)

4.9

5.4

The Economist

October 2015

5.6 (-0.2)

5.1 (+0.1)

4.8

5.2

Faisal Basri

October 2015

5.7 (-0.1)

5.0 (0.0)

4.7

5.4

5.3

Thank You
Email: faisal.basri@gmail.com
Twitter: @faisalbasri
Blog: faisalbasri01.wordpress.com
Blog: kompasiana.com/faisalbasri