INDONESIA MONTHLY ECONOMIC WRAP June 2018 Summary of key economic developments Manufacturing PMI rose to a 23-month high Indonesia’s real sector recorded mixed outcomes with the Manufacturing (index, LHS) Purchasing Manager’s Index (PMI) rising to a 23-month high in May 2018. 52 High frequency indicators such as motorcycle sales grew much slower than the previous month. On the prices side, headline inflation eased due to a slower increase in raw food prices. Core inflation remained stable, while 51 administered price inflation continued to track downwards. Foreign exchange reserves were down from the previous month, partly due to repayment of 50 external debts and Bank Indonesia’s attempts to manage currency volatility. Indonesian financial assets also recorded mixed outcomes as the Rupiah appreciated and Jakarta Composite Index rose, while bond yields on 49 average, increased across all tenors. Both credit growth and deposit growth accelerated. 48 May-17 Nov-17 May-18 Further details Source: CEIC; World Bank staff calculations • Headline inflation eased to 3.2 percent yoy in May 2018 from 3.4 percent in April. Prices increased at a slower pace despite the festive holidays, with Credit and deposit growth ticked up in April raw food prices growing 4.5 percent yoy compared to 5.2 percent in April. (percent yoy, LHS) Administered price inflation also eased to 3.6 percent yoy from 4.0 percent 15 while core inflation remained stable at 2.7 percent yoy in May. • The Nikkei/Markit Indonesia Manufacturing Purchasing Managers 12 Index increased from 51.6 in April 2018 to 51.7 in May 2018, indicating Private deposits continued economic expansion. Growth was underpinned by the fastest rise in new orders since July 2014, while output rose for the fourth 9 consecutive month—the longest period of expansion in around five years. • Motorcycle sales growth eased to 10.9 percent yoy in May 2018 from Loans 49.7 percent in April. 6 • The Consumer Confidence Index rose to 125.1 in May 2018 from 122.2 3 in April 2018. The increase was mostly driven by an improvement in the Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 gauge of current economic conditions, current income index and an increase Source: BPS; World Bank staff calculations in the purchase of durable goods. However, consumer perceptions of current employment was lower and perceptions of job availability for the next 6 Inflation eased in May months is more pessimistic. (percent yoy) • Retail sales growth picked up in May to 4.4 percent yoy from 4.1 percent 8 in the previous month – the fastest pace of growth in 11 months. An 7 Food increase in the sale of household appliances and information and communication equipment were the two components that drove the May 6 outcome. The survey revealed that there is a perception that inflationary 5 Non-food pressures over the next three months is expected to ease. 4 Headline • Both deposit growth and credit growth picked up. Deposits and credits 3 grew 7.4 percent and 8.9 percent yoy, respectively, in April 2018. Core 2 • Official reserve assets declined by USD 2.0 billion to USD 122.9 billion 1 at the end of May 2018. The decline in reserves in April was mainly due to 0 external debt repayments and Bank Indonesia’s efforts to keep the Rupiah May-16 Nov-16 May-17 Nov-17 May-18 stable. Source: BPS; World Bank staff calculations • Indonesian financial assets recorded mixed outcomes over the past month. The Rupiah appreciated by 1.2 percent against the U.S. dollar. Bond Indonesian financial assets recorded mixed outcomes yields, on average, increased across all tenors. The Jakarta Composite (index, June 08, 2016=100, LHS; IDR thousands per Index rose by 1.5 percent in the 30 days to June 08, 2018. USD and percent, RHS) • At the end of May 2018, Bank Indonesia raised its 7-Day Reverse Repo 150 IDR 000 per USD (RHS) 15 Rate for the second time in the month by 25 basis point to 4.75 percent. 140 14 BI also raised the Deposit Facility and Lending Facility rates by 25 basis 130 13 points to 4.00 percent and 5.50 percent, respectively. 120 12 • Based on the central government’s audited financial report, the budget 110 Jakarta Composite Index 11 deficit stood at IDR 341 trillion (equivalent to 2.5 percent of GDP) while 100 10 the tax ratio was 10.7 percent in 2017. 90 9 • The Indonesia Deposit Insurance Corporation has decided to maintain 80 5-yr IDR government bond yield (RHS) 8 its guaranteed interest rates of 5.75 percent for foreign exchange 70 7 deposits and 8.25 percent for Rupiah deposited in microcredit banks. 60 6 • The government has prohibited state-owned enterprises from seeking 50 5 new banks loans, requiring them to find alternative financing, such as Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 securitization and bonds. Source: BI; JSX; World Bank staff calculations