Macroeconomic

Outlook 2020

M. Chatib Basri

Creco Research

University of Indonesia
 2

Number of risks
 Trade War

 Brexit

 Negative correlation between liquidity and volatility (Ugai, 2019)

 Slow down of economic growth: impact on earning, credit

performance, assets repricing

 Less dovish monetary policy: reversal of capital flows

 3

A Trade war or Thucydides?

 4

Uncertain
economic
and
geopolitical
situation
 5

Trade Channel
 6

Impact on ASEAN
Impact on ASEAN: Scoreboard
Countries

Source: CEIC, OCBC Bank, WTO

5
 Potential impact on 7

ASEAN and other Asian

Economies
US is China’s largest trading partner:
• China’s trade linkages with Asia are significant as well.
China key trading partners

15.6%
700,000
600,000

Total Trade: U SD m n
500,000

7.8%
6.5%
400,000

6.4%
4.2%
300,000

3.4%
2.5%
2.5%
2.2%
2.1%
2.1%
2.1%
2.1%
2.0%
1.9%
200,000
100,000
0

Vietnam
Australia

Malaysia

India
Russia
Hong Kong

Mexico
Germany

Brazil

UK
United States
Japan

Netherlands

Thailand
South Korea
7
Mineral Commodity Prices Data as of
July 2019
25.000 2.500

20.000 1.7972.000

1.413
15.000 1.500
13.546

10.000 1.000
7.208
5.941
5.000 500

0 0
2014 2015 2016 2017 2018 2019

Coal, Australian ($/100 mt) Nickel ($/mt) Copper ($/mt)

Aluminum ($/mt), RHS Gold ($/troy oz), RHS

Source: World Bank – Commodity Markets

(2019)
GDP Growth ASEAN 5 +Vietnam, Japan, China and South Korea

GDP growth
%, yoy
9

8
7
6,71
6 6,20
5,45
5 5,05
4,93
4

3
2,31
2 2,10
1 1,20

0 0,10
Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Indonesia Malaysia Philippines Singapore Thailand

Source: CEIC
(2019)
 10
The end is near?
Financial Channel
 policy expectations; 4) VIX sudden high; 5) US dollar
5.0% appreciation and idiosyncratic events in the emerging
economies, and 6) changes in the Fomc (Federal Open
Market Committee) communication towards a more
2.5% dovish direction in 2019. The monthly variations in 11

We are subsidized by QE
the BCB risk appetite index are highly correlated with
0.0%
the monthly portfolio
w flo for a selection of emerging
countries89 (Chart 2.5.6).

Chile

Indonesia
Colombia

Mexico

Peru

Bulgaria

Turkey

India

Poland

Russia
South Africa

Brazil

Philippines

Thailand
But for how long?
The twelve-month accumulated portfolio w flo for a
2014 2015 2016 2017 2018* selection of countries were negative of US$17.7 billions
Source: IMF * 12-month accum. until 2018 Q3 in January 2019, showing
w a flo reversal, in line with the
Statistical annex recent behavior of the risk appetite index (Chart 2.5.7).
Chart 2.5.5
Chart 2.5.5 –– Risk
Risk appetite index-
index –
In fact, the risk appetite index began a more persistent
emerging economies
Emerging path of decline from February 2018 to December 2018,
Standard
Standard
deviationdeviation
of the
of the mean
showing partial recovery only in January 2019.w
mean
0.00.0
Global
Global upswing
upswing Expectationsrevision
revision- -Fed
Fed
Expectations
Several global and idiosyncratic factors contributed to the
-0.5
-0.5
reduction of risk appetite for emerging economies’ assets
USUS
elections
elections
Vix
Vix US dollar aprecition vs
US dollar aprecition vs
EMEs
throughout 2018, including a contagion
c effet between
EMEs Fed
Fed
dovish
dovish
emerging economies. Increased trade tensions, US
-1.0
-1.0
monetary policy tightening, electoral cycles in Mexico,
Turkey and Brazil and the exchange rate depreciation in
-1.5
-1.5 Argentina are examples of factors that contributed for the
worsening in the sentiment towards emerging markets. In
-2.0 time, US economic policy, including non-conventional
-2.0
Sept Nov Jan Mar Jun Aug Oct Jan Mar May Aug Oct Dez Feb
Sep Nov2017
2016 Jan Mar Jun Aug Oct 2018 Jan Mar May Aug Oct Dec 2019
Feb monetary policies adopted in the post-crisis period, has
2016 2017 2018 2019
Statistical annex been a major external element on capital flos 90, 91.

Chart 2.5.6 – Portfolio flow and risk appetite index In order to understand the ceffet s of risk appetite andw
US$ bi s.d. United States monetary conditions on the portfolio
30 0.6 flo for the emerging economies and for Brazil along

87/ South Africa, Brazil, India, Indonesia, Mexico, Russia and Turkey.
15 0.3 88/ A positive variation in the index means an increase in the investors’ risk
appetite for assets of emerging economies.
89/ For this higher frequency analysis, we used data of portfolio
w flos from
0 0 Bloomberg database for a more restricted set of emerging economies that
contain more up-to-date data. This allowed us to produce estimates until
December 2018. We selected countries whose Bloomberg monthly data
-15 -0.3 were consistent with quarterly data reported by the IMF. The countries
selected are South Africa, Brazil, Bulgaria, Korea, India, Indonesia,
Poland, Czech Republic and Turkey.
-30 -0.6 90/ Koepke, 2015, “What Drives Capital Flows to Emerging Markets? A
Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Jul Jan Survey of the Empirical Literature”.
2011 2012 2013 2014 2015 2016 2017 2018 2019
91/ João Barata R. B. Barroso, Luiz A. Pereira da Silva e Adriana Soares Sales,
Portfolio flow for EM (monthly)
“Quantitative Easing and Related Capital Flows into Brazil: measuring
Risk appetite index, monthly var. (Right)
Source: IMF and BCB
its ceffet s and transmission channels through a rigorous counterfactual
Statistical annex evaluation”, BCB Working Paper Series no. 313.

April 2019 | Fin an cial St ab ilit y Rep o r t | 52

 2

-1

-2

Sign of recession?
-3

-4

1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
Treasury Spread: 10 yr bond rate-3 month bill rate Probability of US Recession Predicted by Treasury Spread*
Monthly Average (Percent) Twelve Months Ahead (month averages)
5 1

4 Jul 2019 = -0.080529 0.9 Jul 2020 = 31.4788%

0.8
3
0.7
2
0.6
1 0.5

0 0.4
0.3
-1
0.2
-2
0.1
-3 0

1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
-4
1959
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
*Parameters estimated using data from January 1959 to December 2009, recession probabilities predicted using data through Jul 2019.
The parameter estimates are =-0.5333, =-0.6330.
Updated 02-Aug-2019

Newof US
Probability York Fed,
Recession Predicted by Treasury Spread*
Twelve Months Ahead (month averages)
1 2019
0.9 Jul 2020 = 31.4788%
0.8
0.7
 Yet US economy
remains strong
Decomposition of Real GDP Personal Saving Rate
Percent of disposable personal income
10-Year Annual Growth Rates 10 10
5.0 5.0

4.5 4.5 9 9
Jun
8.1%
4.0 GDP 4.0
8 8
3.5 3.5
7 7
3.0 3.0

6 6
2.5 Productivity
2.5

2.0 2.0 5 5

1.5 1.5
4 4
1.0 1.0
Employment
3 3
0.5 0.5

0.0 0.0 2 2
1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 2007 2009 2011 2013 2015 2017 2019

Note: Productivity is calculated as real GDP per employee, from the Household Survey. Note: Income has been adjusted to account for temporary events

Source: Bureau of Economic Analysis and Bureau of Labor Statistics via Haver Analytics 6 Source: Bureau of Economic Analysis via Haver Analytics 10

Household Net Worth Unemployment Rate

Percent of disposable personal income Percent
725 725 11.0 11.0
Q1
700 700
10.0 10.0
675 675

9.0 9.0
650 650

625 625 8.0 8.0

600 600
7.0 7.0
575 575
6.0 6.0
550 550

525 525 5.0 5.0

FOMC Projection
Jul
500 500 4.0 3.7% 4.0

475 475
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 3.0 3.0
2007 2009 2011 2013 2015 2017 2019 2021 2023
Notes: FOMC projection is the median, range, and central tendency for the Q4 levels, from the June 2019 meeting.
Source: Z.1 Financial Accounts of the United States via Haver Analytics 11
Red dots indicate median projections
33
Source: Bureau of Labor Statistics & Board of Governors via Haver Analytics
 14
Sign of stress (McKinsey,
2019)
 15

Stressed debt
 16

Is Indonesia immune?
 FINANCIAL CHANNEL: IMPACT ON INDONESIAN 17
ECONOMY

IDR/USD
Portfolio investment
(+/-)

Economic Growth

Currency War
Fed’s policy

CA Bank
Deficit Indonesia Monetary policy Investments

rate

Oil Price Lower Not much

CPO Price Govt room for Fiscal
Coal Price (low rank) Revenue expansion
 Not much room for monetary 18

and fiscal policy

2018 2018 2019 2019 2019-2018 2019-2018
Post
A. Revenues
Budget
1,895
August
1,153
Budget
2,165
August Budget to Budget (%)
1,189 14.2
Aug (%)
3.2
Banking sector indicators
1. Tax Revenues 1,618 908 1,786 920 10.4 1.4 (Monthly, percent)
Income tax 855 479 894 494 4.6 3.1
Oil&Gas 38 38 66 39 73.7 4.0
Non Oil&Gas 817 485 828 455 1.3 -6.2 120 4
VAT 542 308 655 288 20.8 -6.4
Land,Building& other taxes 27 12 28 19 3.7 52.4
Excises 155 79 166 93 6.8 18.5 Loan to deposit ratio 94.7
100 4
International Taxes 39 30 43 26 10.3 -12.3
2. Non-tax Revenues 275 240 378 268 37.5 11.6
Non performing loans (RHS)
Natural Resources 104 107 191 100 83.7 -7.1
Oil&Gas 80 84 160 78 100.0 -6.5 80 3
Non Oil&Gas 23 24 31 21 34.8 -9.1 2.6
Other Non-Taxes 172 119 188 168 9.3 41.8
3. Grants 1 5 0 1 -63.6 -80.9 60 3
B. Expenditures 2,221 1,303 2,461 1,388 10.8 6.5
1. Central Government 1,454 802 1,634 858 12.4 6.9 2.5
Personnel 366 234 382 259 4.4 10.4 40 Return on assets (RHS) 2
Material 340 163 345 174 1.5 6.2 23.9
Capital 204 71 189 63 -7.4 -10.9
Interest Payment 239 162 276 172 15.5 6.3 20 2
Subsidies 156 106 224 103 43.6 -2.1 Capital adeqacy ratio
Social 81 58 102 79 25.9 34.5
7
2. Transfer To Regions 766 501 827 531 8.0 5.8
0 1

Feb-16

Feb-17

Feb-18

Feb-19
Aug-15
Nov-15

May-16
Aug-16
Nov-16

May-17
Aug-17
Nov-17

May-18
Aug-18
Nov-18

May-19
Aug-19
General Transfer 706 465 757 488 7.2 5.0
Village Funds 60 36 70 42 16.7 16.4
C. Overall Balance -326 -151 -296 -199 -9.2 32.2
Overall Balance (% of GDP) -2.2 -1.02 -1.8 -1.24 -16.4
 19

Our Fiscal Policy is pro-cyclical, unless we

improve spending quality

Government Spending and GDP Growth Discretionary Spending and GDP Growth

Real Discretionary Spending and GDP Growth

350.0

300.0

250.0

200.0

150.0

100.0

50.0

0.0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Retail Sales Index Motor vehicle sales
(index 2010 = 100) (seasonally-adjusted sales growth yoy,
500
Stationary and Communication percent)
450
40
400
350
30 Motor Vehicle Sales
300 20
Retail Sales Index 10
250 Food, Drinks, and Tobacco
200 -

150 (10)
Household Appliances
(20)
100 Motorcycle sales
50 Cultural and Recreation (30)

0 (40)

Nov-14
Jan-15

Nov-15
Jan-16

Nov-16
Jan-17

Nov-17
Jan-18

Nov-18
Jan-19
May-14

May-15

May-16

May-17

May-18

May-19
Sep-14

Sep-15

Sep-16

Sep-17

Sep-18

Sep-19
Jul-14

Mar-15
Jul-15

Mar-16
Jul-16

Mar-17
Jul-17

Mar-18
Jul-18

Mar-19
Jul-19
Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
May-15

May-16

May-17

May-18

May-19
Sep-14
Nov-14
Mar-15

Sep-15
Nov-15
Mar-16

Sep-16
Nov-16
Mar-17

Sep-17
Nov-17
Mar-18

Sep-18
Nov-18
Mar-19

Sep-19
Jan-15

Jan-16

Jan-17

Jan-18

Jan-19
Consumer Confidence Index Poverty and Unemployment Rate
(Index, Weighted average of 18 cities) %
Gini Ratio
150 20% Poverty Rate (Mar) 0,45
18% (Mar) 0,382
Consumer Expectation Index 0,4
140
16% 0,35
130 Consumer Confidence Index
14%
0,3
120 12%
9,41% 0,25
10%
110 0,2
8%
Unemployment Rate 5,01% 0,15
100 Current Economic Condition Index 6% (Feb)
4% 0,1
90
2% 0,05
80
0% 0
Jul-15

Jul-16

Jul-17

Jul-18

Jul-19
Nov-14

May-15

Nov-15

May-16

Nov-16

May-17

Nov-17

May-18

Nov-18

May-19
Sep-14

Jan-15
Mar-15

Sep-15

Jan-16
Mar-16

Sep-16

Jan-17
Mar-17

Sep-17

Jan-18
Mar-18

Sep-18

Jan-19
Mar-19

Sep-19

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: BI, BPS, CEIC (2019)
CPO price and motorcycle correlation

CPO price and motorcycle sales

1.600

1.400

1.200
Palm oil price ($/MT)

1.000

800

600

400

200

0
0 100.000 200.000 300.000 400.000 500.000 600.000 700.000 800.000
Motorcycle sales (Unit)

Source: Indonesian Motorcycle Industry Association (2019) ; World Bank (2019)

Purchasing power of lower 22

middle income group

Real Wages, 2014=100
110

105

100

95

90

85
01/2014
03/2014
05/2014
07/2014
09/2014
11/2014
01/2015
03/2015
05/2015
07/2015
09/2015
11/2015
01/2016
03/2016
05/2016
07/2016
09/2016
11/2016
01/2017
03/2017
05/2017
07/2017
09/2017
11/2017
01/2018
03/2018
05/2018
07/2018
09/2018
11/2018
01/2019
03/2019
05/2019
07/2019
09/2019
Labour Wages: F armer: per Day: Real: 2012 Base
Labour Wages: Construction Work er: per Day: Real: 2012 Base
Labour Wages: Barbershop Woman: per Person: Real: 2012 Base
Labour Wages: Housekeeper: per Month: Real: 2012 Base
 23

Indonesia SOE’s risks

 24

Political economy
 Indonesia: 25

Unemployment
Youth UN+under
23
34
22
32
21
20 30

19 28
18 26
2014 2018 2014 2018

Youth Unemployment by
Education 70 65
Presidential Exit Vote based on Education

80 60 58
54
51
49
50
60 42
46

Percentage
40
35
40
30

20 20

0 10

SMA SMK Sarjana+Dip SMA> SMA Total 0

Elementary or less Junior high school High school University/college

2014 2018 Jokowi-Maruf Prabowo-Sandi

Source: BPS
(2019)
 Provincial Economic Growth 2014-18 and the
2019 Election Results
Jokowi-Ma'ruf win (%) - Quick-count Poltrack Economic growth (% of the median) and Election results

NTT
BALI

JATENG PAPUA
DIY
KALTENG
KALTIM SULUT
BABEL
KALBAR JATIM
SUMUT
KEPRI BENGKULU
PAPBAR
LAMPUNG SULBAR
SULTENG
DKI
MALUKU GORONTALO SULTRA
MALUT
KALSEL
RIAU JABAR SULSEL
SUMSEL BANTEN
JAMBI NTB

ACEH
SUMBAR

5 7 9 11 13 15 17
Sources: Yusuf, A. A.
Annualized percentage change in the median expenditure per person 2014-2018
(2019)
 27

Thank you