09/04/2015

Indonesian Economy
Recent Developments, Prospects,
and Challenges
Edimon Ginting
Deputy Country Director, ADB Indonesia

GDP growth moderated further in 2014

Demand-side contributions to growth

% points
6.4

private consumption
government consumption
gross fixed capital formation
stocks
net exports
statistical discrepancy
gdp

6.2

Fixed investment
Share in GDP (left scale)

6.0

36

5.0

31.0

%
YoY

Growth (right scale)

32.7

32

5.6

% of
GDP

31.3

32.1

12

32.6

28

24

20

0
2010 2011 2012 2013 2014

-3

-3
2010 2011 2012 2013 2014

Sources: Asian Development Outlook

database; CEIC Data Company

09/04/2015

Inflation edged down and current account

deficit recovered gradually
Current account components

Monthly Inflation (2012=100)

10

Inflation,
YoY %
change

Merchandise trade
Services trade
Primary income
Secondary income
Current account

$ billion
40
20

6
4

-20

-40
2010

2011

2012

2013

2014

Sources: Asian Development Outlook database; CEIC Data Company

Rupiah weakened moderately despite

improved domestic resilience
Gross reserves and exchange rate
120

$ billion

Rp/$
Gross International Reserves

110

8000
9000

Exchange Rate

10000

100

11000
12000

90

13000

Sources: Asian Development Outlook database; Bloomberg

Jan 2015

Oct

Jul

Apr

Jan 2014

Oct

Jul

Apr

Jan 2013

Oct

Jul

Apr

14000
Jan 2012

80

09/04/2015

Prospects

Economic growth to rebound supported

by domestic reforms
Selected economic indicators

2015

2016

GDP growth (%)

5.5

6.0

Inflation (% average)

5.5

4.0

Current account balance

(% share of GDP)

-2.8

-2.4

Source: ADB estimates

09/04/2015

Consumer and business confidence

recover
Consumer and business
confidence indexes

Industrial Production Index

(2010=100)

125

130

Index
Consumer Confidence

120

Index

128
126
124

115

122
120

110

Business Tendency

105

118
116
114

100

112

95
Q1-'13

110
Q3

Q1-'14

Q3

Jan-14

Feb-'15

Apr

Jul

Oct

Source: CEIC Data Company

Jan-15
7

Public investment and improved budget

execution provide larger support for recovery
Fiscal indicators
4.5

% of
GDP

Capital expenditure
Subsidies

300

Rp
Trillion

250

200

1.5

150
0
100
-1.5
-3

50
Fiscal Deficit

2010 2011 2012 2013 2014 2015

2011

Source: CEIC Data Company

2012

2013

2014

2015
(revised
budget)
8

09/04/2015

Investment to regain momentum, supported

by improving growth prospects
How will your level of investment change
in the following markets during 2015?

Source: Asia Business Outlook Survey 2015, The Economist Corporate Network.

and policy reforms to improve

investment climate
A new one-stop investment licensing service
to speed up and enhance the transparency of
obtaining licenses.
Tax breaks for investment in export-oriented
industries, railway and shipping industries,
and research and development.
Private investment in selected infrastructure.

10

09/04/2015

Domestic credit is also projected to recover

to 15% in 2015
Lending interest rates
12.5

Investment credit growth

% YoY

40

% per
annum

35
30

12.3

25
20

12.1

15
11.9
Jan 2014 Apr

Jul

Oct Jan 2015

10
Jan 2014

Apr

Jul

Oct

Jan 2015

Sources: Asian Development Outlook database; CEIC Data Company

11

Some early signs

of improvement in trade performance
Manufacturing exports growth
25

Trade balance
2500

% YoY

$ million

20
15
1250

10
5

0
-5
-10

-1250

-15
Jan13

Jul

Jan14

Jul

Jan15
-2500

Sources: Bank Indonesia

12

09/04/2015

Policy Challenge: develop new source

of exports to restore 6%-plus expansion
Real GDP, Export of goods and services, and investment growth
18
16
14
12
10
8
6
4
2
0
-2
-4

Commodity Boom
Export of Goods and Services

6.4

Fixed Investment

6.2

4.7

6.0

5.6

5.0

GDP

2009

2010

2011

2012

2013

2014

Sources: Asian Development Outlook database; CEIC Data Company

13

Export oriented manufacturing

is more stable than commodities
Selected sector export growth
25

% change

2013

Vehicles
Parts

2014

15
Palm Oil

Processed
Rubber

-5

-15

Textile
and
Textile
Product

Chemicals

Motor
vehicle
(4-wheels &
more)

-25
Sources: Asian Development Outlook database; CEIC Data Company

14

09/04/2015

and generate more and better jobs

Change in employment by status
and real manufacturing sector growth
% YoY
8

million people
6
Change in formal employment (left scale)
Manufacturing growth
(right scale)

0
-3

4
2

Change in informal employment (left scale)

-6

0
Q311 Q4 Q112 Q2

Q3

Q4 Q113 Q2

Q3

Q4 Q114 Q2

Q3

Q4

Sources: Asian Development Outlook database; CEIC Data Company

15

Larger share of foreign investment has been

channeled into manufacturing
Share of realized investment by sectors
100%
90%

Services

80%
70%
60%
50%

Manufacturing

40%
30%
20%

Mining

10%

Food Crops & Plantation

0%
2010

2011

2012

2013

2014

Others

Source: Investment Coordinating Board

16

09/04/2015

Central bank to focus on stability in the near term,

but there is room for easing down the line
Balance of payments components
45

$ billion

30

Balance of Payment

Financial Account

15
0

Current Account

-15

Errors and Omissions

-30
2010

2011

2012

2013

2014

Sources: Asian Development Outlook database; CEIC Data Company

17

Downside Risks to Growth

Government revenue lower than target.
Delayed domestic reform.
Slower growth in trading partner countries.

18

09/04/2015

Key Messages
Growth is forecast to pick up, driven by policy reform to
improve the investment climate.
Reform of fuel subsidies has already freed significant public
funding for social and physical infrastructure.
Inflation is seen subsiding to moderate rates through the
forecast period, and the current account deficit to narrow.
Monetary policy to focus on stability in the near term, but
there is room for easing down the line.
Maintain domestic reform momentum to diversity the
sources of growth
19

10