INDONESIA November 2018 Summary of key economic developments Net exports were still a drag on GDP growth in Q3 Real GDP recorded a 5.2 percent yoy growth in Q3 2018, underpinned by (contributions to growth yoy, percentage points) strong domestic demand, while net exports continuing to be a drag. The Private cons. Govt cons. Investment Net exports current account deficit (CAD) widened to 3.4 percent of GDP, due to the 8 Stat. discrepancy Change in stocks goods trade balance turning into a deficit as well as a larger services trade GDP deficit. Meanwhile, business sentiment within the manufacturing sector 6 eased with the Manufacturing Purchasing Manager’s Index (PMI) edging down to 50.5 in October from 50.7 in September. Headline inflation ticked up to 3.2 percent yoy as administered and volatile food prices grew faster, while 4 core inflation remained broadly stable. Foreign exchange reserves improved in the end of October, mainly due to foreign exchange revenues from oil and 2 gas, and the withdrawal of external debt. Financial market conditions turned more favorable with the Jakarta Composite Index rising, the Rupiah 0 appreciating and bond yields decreasing for all tenors. -2 Further details Sep-16 Sep-17 Sep-18 • Indonesia’s economy growth remained robust at 5.2 percent yoy in the Source: BPS; World Bank staff calculations third quarter of 2018. Real GDP growth was slightly slower than the Q2 outturn of 5.3 percent. Domestic demand underpinned Q3 GDP growth, while CAD widened further to 3.4 percent of GDP in Q3 the contraction of net exports continued to drag. Private consumption eased (USD billion) to 5.1 percent yoy in Q3, as the effect of Q2 festivities dissipated. Although 15 moderating, private consumption growth remained higher than its average over the last four years. Gross fixed capital formation growth rebounded to 10 7.0 percent in Q3, accompanied by a jump in government consumption growth to 6.3 percent from 5.2 percent in Q2. In line with slower global trade 5 growth, both exports and imports growth eased marginally. On the production side, most sectors saw stronger growth, except for agriculture 0 (reflecting the end of harvest season) and utilities sector. -5 • The Nikkei/Markit Indonesia Manufacturing PMI edged down from 50.7 Error & omissions -10 Capital & financial account in September to 50.5 in October. This is due to a softer demand, with Current account declines seen in both total new orders and export sales. Overall balance -15 • Indonesia’s current account deficit widened further to 3.4 percent of Sep-16 Sep-17 Sep-18 GDP in Q3. The widening of the CAD was driven by goods trade balance Source: CEIC; World Bank staff calculations turning to a deficit and a larger services trade deficit. The goods trade deficit Inflation ticked up in October was mainly due to the oil and gas sector, while the larger services trade (percent yoy) deficit was driven by the transportation sector. Overall, the balance of payments recorded a deficit of USD 4.4 billion. A surplus of USD 4.2 billion 12% posted by the capital and financial account was not sufficient to cover the widening CAD. 10% Administered • Headline inflation accelerated from 2.9 percent yoy in September to 3.2 8% percent in October. Volatile foods and administered price inflation were the 6% Food main contributors. Volatile food prices (particularly red chili, rice and oranges) grew faster following the end of harvest season. Adjustments of 4% Headline non-subsidized fuel prices on 10 October contributed to an administered 2% Core price hike. Core inflation remained broadly stable at 2.9 percent level. • The trade balance recorded a deficit of USD 1.8 billion in October 2018 0% from a surplus of USD 0.3 billion in September. Exports grew 3.7 percent -2% yoy, while growth of imports exceeded this, at 23.7 percent yoy, mainly due Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 to an increase in oil and gas imports following higher global commodity prices. Source: BPS; World Bank staff calculations • Official reserve assets improved by USD 315 million to USD 115.2 Indonesian financial assets recorded strong outcomes billion at the end of October, despite widening trade deficit. Reserves (index, November 25, 2016=100, LHS; IDR thousands recorded an increase for the first time in 2018, due to an increment in foreign per USD and percent, RHS) exchange revenue from oil and gas, as well as the withdrawal of government 140 16 external debt, which surpassed the foreign exchange needs for external debt 130 repayments and Rupiah stabilization. IDR 000 per USD (RHS) 14 120 • Indonesian financial assets recorded strong outcomes over the past 110 Jakarta Composite Index 12 month. The Rupiah appreciated by 4.3 percent against the U.S. dollar. Bond 100 yields, decreased across all tenors. Yields on 5-year bonds recorded a 90 10 decrease of 45 basis points. Meanwhile, the Jakarta Composite Index rose 5-yr IDR government 80 by 4.1 percent in the 30 days to November 26, 2018. bond yield (RHS) 8 70 • Bank Indonesia raised its 7-Day Reverse Repo Rate by 25 basis points 60 6 to 6.00 percent, while Deposit and Lending Facility rates increased by 50 the same amount. 40 4 • Government and Parliament ratified the 2019 State Budget, expecting Nov-16 May-17 Nov-17 May-18 Nov-18 further fiscal consolidation with projected deficit down to 1.84 percent of GDP. Source: BI; JSX; World Bank staff calculations