Indonesia Economic Outlook in 2019

1. As of 2019, Indonesia is the 16th largest economy in the world by nominal GDP and the
7th largest in terms of GDP (PPP), with a GDP of approximately US $ 1.111,7 billion.
GDP per capita (nominal) is at USD 4,163 billion.
2. Incumbent Joko Widodo and running mate Ma’ruf Amin have released their platform for
the 2019 presidential election, giving it the title Indonesia Maju (Indonesia Moving
Forward). The Indonesia Maju program, outlined in a 38-page document, aims to create a
developed Indonesia that is “sovereign, independent and with characteristics based on
gotong royong [mutual cooperation].
3. New issues highlighted in the Indonesia Maju platform are economic inequality,
sustainable development, bureaucracy and relations between the central and regional
governments. In terms of the economy, Islamic or sharia-based finance has been given
significant focus.
4. Indonesia’s economic growth decelerated to 5.0 percent in the third quarter of 2019, from
5.1 percent in Q2. The current account deficit narrowed to 2.9 percent of GDP for the four
quarters through Q3 2019, compared to 3.1 percent in the first two quarters. Capital
inflows rose, leading to a larger surplus in the financial account. Indonesia’s real GDP
growth eased modestly to 5.0 percent yoy in Q3 2019. On the production side, the
mining, manufacturing and financial sectors1 reported faster growth, while agriculture
and other service sectors grew considerably slower.
5. Indonesia’s economy created 2.5 million new jobs, taking the employment rate to 63.9
percent in August 2019, up from 63.6 percent in August 2018. The labor force
participation also rose to a four-year high of 67.4 percent. On the other hand, nominal
wage growth was muted, coming in at 3.0 percent yoy, implying a decline in real wages.
Urban unemployment has declined by 0.14 percentage points to 6.3 percent but remains
above the national average. Youth unemployment also remains high, although it has
fallen from 19.7 to 18.6 percent since August last year.
6. Indonesia’s poverty rate reached another record low of 9.4 percent in March 2019 from
9.8 percent in March 2018.
7. Gross fixed capital formation (GFCF) slowed to 4.2 percent yoy in Q3 from 5.0 percent
in Q2. The latest outturn was in line with slower investment growth, lower commodity
prices, a maturing mining investment cycle, lingering external and domestic uncertainty
prior to the announcement of the new cabinet, and weak public investment. Growth of
investment on building and structures remained robust at 5.0 percent, but slower than the
5.5 percent in Q2. Partly because of the tailing-off of capex cycles in the mining and
infrastructure sectors and continued declines in the prices of the country’s key commodity
exports, growth of investment in machinery, equipment and vehicles slowed.
8. Export volumes were flat after shrinking 2.0 percent in Q2, as oil and gas (O&G) exports
declined less than in Q2, while non-O&G exports continued to post modest growth.
Meanwhile, import volumes contracted for the third consecutive quarter, declining 8.6
percent after falling 6.8 percent in Q2, in line with slowing investment. Consumption
good imports have also been declining in line with the governmental policies to reduce
imports of selected consumer goods. In line with slowing investment in machine,
equipment and vehicles, nominal capital goods imports fell 1.9 percent in Q3.
9. FDI was broadly stable at USD 5.7 billion in Q3 compared to USD 5.8 billion in Q2. The
Capital Investment Coordinating Board (BKPM) recorded Singapore as the largest
foreign investor in Indonesia in the second quarter of 2019 with USD 3.4 billion, the
second largest investor Japan with USD 2.3 billion and the third is China with USD 2.2
billion.
 The marginally smaller FDI inflows resulted from smaller investments into mining,
quarrying, and financial intermediation. The manufacturing sector remained the main
destination for FDI flows, followed by wholesale and retail trade and agriculture, with the
three sectors accounting for 82.2 percent of total FDI flows. The highest FDI’s sector in
Quarter II 2019 is electricity, gas and water supply at USD 1350,5 billion with 315
projects, following the second sector is transportation, warehouse. and telecommunication
at USD 949 billion with 349 projects and the third sector is metal, except machinery and
equipment industry at USD 857,9 billion with 475 projects.
10. With stronger capital inflows, the Rupiah appreciated in nominal terms against the U.S.
Dollar by an average of 0.9 percent in Q3, compared with a 0.9 percent depreciation in
Q2. The currency also performed better than other EM currencies, with the JP Morgan’s
EMCI (Emerging Market Currency Index) depreciating 1.1 percent in Q3. In real
effective terms31, the Rupiah has also strengthened the most among regional peers in Q3,
appreciating 3.1 percent during Q3, and 5.7 percent year-todate.
11. In line with the macroeconomic outlook for 2019, the budget deficit is projected to reach
2.1 percent of GDP from the 1.8 percent in 2018. Government revenue is projected to
reach 12.4 percent of GDP, mainly because of lower commodity prices, slower imports,
and increased tax refunds. Total Government expenditure is projected to reach 14.6
percent of GDP, 0.7 percentage point lower than in 2018, with smaller capital and subsidy
spending. Total central government debt is expected to reach USD 351.7 billion or 30.1
percent of GDP at end-2019, up slightly from 29.8 percent of GDP at end-2018.
12. With gradually easing international trade tensions, reduced political uncertainty on the
formation of the new cabinet, lower borrowing costs, and improved business sentiment
due to the proposed reforms, domestic investment growth is expected to accelerate next
year, albeit remaining lower than last year’s five-year high. With investments and wages
recovering, private consumption growth is projected to be broadly stable, though easing
modestly in 2020 on account of the higher inflation with the removal of electricity tariff
subsidies for a substantial number of households next year.
13. In 2020, revenue is projected to grow to 12.8 percent of GDP, with the share of tax
revenue projected to increase due to dividends from implemented tax reforms. The share
of non-tax revenue is expected to decline due to muted commodity prices. Total
expenditure is projected to reach 14.8 percent of GDP, leading to a primary fiscal deficit
of 0.4 percent of GDP and fiscal deficit of 2.1 percent of GDP. Central government debt
is projected to increase slightly to 30.2 percent of GDP by end-2020.
14. Indonesia is ranked 73 among 190 economies in the ease of doing business, according to
the latest World Bank annual ratings. The rank of Indonesia remained unchanged at 73 in
2019 from 73 in 2018.  Indonesia scored 69.6 out of 100, an increase of 1.64 points. The
increase was slightly higher than last year’s increase of 1.42 points to 67.96.
15. IDX trading data in the first week of January 2020 closed vary, this is indicated in the
Jakarta Composite Index (JCI) which experienced a change of 0.09 percent to USD
463.63 from USD 464.06 at the close of trading the previous week. Then, the market
capitalization value during the week also experienced a change of 0.08 percent to USD
53.338 billion from USD 53.383 billion at the close of trading last week.
The average daily transaction volume of the IDX also closed changed by 27.56 percent to
9.476 billion units of shares from USD 13.081 billion units in the previous week, while
for the average transaction value experienced a change of 17.36 percent to USD 51.927
billion from USD 62.832 billion. Meanwhile, the average daily transaction frequency
increased by 0.93 percent from 405,205 thousand transactions in the previous week to
408,984 thousand transactions. Foreign investors today recorded a net purchase value of
USD 56.5 billion, while throughout 2020 alone, net foreign purchases of USD 69.04
billion were recorded.
 New Tax Holiday Policy to Boost Industry

16. To encourage direct investment in pioneer industries in Indonesia and in alignment with
the provisions of Law No. 24/2018, the government has issued Minister of Finance
Regulation No. 150/PMK.010/2018 (“PMK–150”), which revokes the previous regulation
PMK–35, related to corporate income tax holiday. In order to benefit from the tax
holiday, PMK–150 lowers the minimum value to USD 7.3 billion of new investment in
pioneer industries, from the previous minimum of USD 36.6 billion under PMK-35. For
investment value between USD 7.3 billion and USD 36.6 billion, a company may enjoy a
50 percent income tax reduction for the first five fiscal years, and a 25 percent income tax
reduction for the following two fiscal years. The tax holiday benefit for investments of
USD 36.6 billion and above remains the same.
The list of pioneer industries which may enjoy the tax holiday has changed under PMK-
150. The changes include industries which manufacture the following: 1. Irradiation,
electro medical or electrotherapy equipment; 2. Main components of electronics or
telematics equipment; 3. Machinery and main components of machinery; 4. Robotics
components that support the creation of manufacturing machinery; 5. Main components
of power plant machinery; 6. Motor vehicles and main components of motor vehicles; 7.
Main components of vessels; 8. Main components of trains; 9. Main components of
aircraft and activities supporting the aerospace industry. It also introduces two new
industries in the list, namely: 1. Agricultural, plantation or forestry-based processing that
produces pulp; and 2. Digital economy, which includes data processing, hosting and
related activities.
17. The 2019 state budget had a deficit of USD 216 billion or 1.84 percent of GDP (the same
as the 2019 RAPBN deficit). To cover state budget deficit in 2019, budget financing of
USD 216 billion decreased 5.8 percent from the 2018 state budget outlook. Budget
financing came from debt financing in the form of Conventional Government Securities
(SBN) and State Sharia Securities (SBSN), The debt financing grew negatively by minus
7.3 percent from the outlook of the 2018 state budget. In addition, budget financing was
also for investment activities. Investment financing in 2019 was intended to improve the
quality of education, infrastructure, and export competitiveness as well as Indonesia's role
in the international world.
Forex Reserves
18. Foreign Exchange Reserves in Indonesia increased to USD 129.18 Million in December
from USD 126.63 Million in November of 2019. Foreign Exchange Reserves in Indonesia
averaged USD 75.83 Million from 2000 until 2019, reaching an all time high of USD
131.97 Million in January of 2018 and a record low of USD 27.40 Million in July of 2000
International Trade
19. In November 2019 the value of export in 2019 for period January – November total
valued USD 141.677,9 billion and import reached USD 136.469,4 billion.The category of
economic goods usage is still dominated by imports of raw / auxiliary materials at USD
77,9 billion (74.99 percent), followed by capital goods at USD16,803.5 billion (16.19
percent), and consumer goods at USD 9,1 billion (8.82 percent). The main group of
 imported goods is the machinery and transportation equipment group with a value of
USD 36,1 billion (32.29 percent).

2015 2016 2017 2018 2019(Jan-Nov)

Indonesia’s Exports 150.3 145.2 168.8 180.1 153.0

Indonesia’s Imports 142.6 135.1 156.9 188.6 156.2

Value in US $ billion Source: Badan Pusat Statistik

Major Trading Partners

20. Indonesia’s most important trading partner is China with total bilateral trade trade of USD
141.6 billion in period of January-November 2019 and it has decreased 6.21 percent
compared to the previous year in the same period. Japan is the second largest country to
Indonesia’s import at USD 40.5 billion in period of January-November 2019. Below table
contains of the top ten export as well import destination of Indonesia.

Major Export Exports Value (Jan – Major Import Imports Value (Jan-
Destinations of Nov 2019) : $ Destinations of Nov 2019) : $
Indonesia thousand Indonesia thousand

1 China 2,655,743 China 4,089,246

2 USA 1,476,636 Singapore 1,667,004

3 Japan 1,176,686 Japan 1,257,484

4 India 1,052,199 USA 765,998

5 Singapore 991,762 Thailand 741,722

6 Malaysia 724,847 Malaysia 727,087

7 Philippines 545,284 South of Korea 700,524

8 South of Korea 525,145 Australia 661,898

9 Vietnam 471,244 India 325,419

10 Thailand 465,627 Germany 277,514

Major Import / Export Commodities
21. Indonesia’s major export commodities in 2019 include mineral fuels, mineral oils and
products of their distillation, electrical machinery, equipments etc. Where imports include
nuclear reactors, boilers,machinery, mechanical, etc. Below tables contains the details of
the top ten major imports and export commodities and the value in total exports and
imports of Indonesia.

No. Major Export Exports Value: $ Major Import Imports Value: $

Commodities of billion (Jan-Nov Commodities of billion (Jan-Nov
Indonesia 2019) Indonesia 2019)

1. Mineral fuels, 20.4 Nuclear reactors, 24.5

oils boilers,machinery,
mechanical

2. Animal or 15.5 Electrical 18.0

vegetable fats and machinery and
oils equipments

3. Electrical 7.84 Iron and steel 9.5

machinery and
equipments

4. Vehicles 7.58 Plastics and 8.0

articles thereof

5. Rubber and 5.56 Vechicles 6.7

articles thereof

6. Nuclear reactors, 4.97 Organic chemicals 5.3

boilers,
mechanical
appliances

7. Iron and steel 6.77 Articles of iron and 3.2

steel

8. Natural and 6.24 Cereals 3.0

cultured pearls

9. Ores, slag, and 2.74 Residues and waste 2.4

ash from the food
industries

10. Footwear, gaiters 4.04 Optical 2.5

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