INDONESIA February 2019 Summary of key economic developments Stronger private consumption drove growth in Q4 GDP posted a 5.2 percent yoy growth in Q4 2018 driven by stronger private (contributions to growth yoy, percentage points) consumption and smaller contraction in net exports. The current account Change in inventories deficit widened further to 3.6 percent of GDP in Q4 2018 from 3.3 percent of 10 Stat. discrepancy* Net exports GDP in previous quarter due to a larger goods trade deficit. Indonesia’s real Investment sector recorded weak readings with the Manufacturing Purchasing 8 Government consumption Private consumption Managers’ Index (PMI) dropping below the expansion territory and consumer GDP confidence index softening in January. Headline inflation continued to ease 6 as food prices grew slower, while administered price inflation and core 4 inflation was flat in January. Foreign exchange reserves reported a decrease at the end of January, as a result of government external debt payment. 2 Indonesian financial assets continued to strengthen with the Jakarta Composite Index rising in the 30 days to February 11, the Rupiah 0 appreciated and bond yields decreased across all tenors over the same -2 period. -4 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Further details • Indonesia’s economy expanded 5.2 percent yoy in Q4 2018, bringing Source: BPS; World Bank staff calculations the annual 2018 growth to 5.2 percent. GDP growth in 2018 was higher Current account deficit widened in Q4 2018 than the 5.1 percent recorded in 2017 and the highest since 2013. Stronger (USD billion) private consumption and smaller contraction in net exports offset slower government consumption and investment. In line with slower global trade 15 due to trade tensions, both exports and imports growth was halved in Q4. On the production side, the manufacturing sector remained the largest contributor to growth but other services sectors (public administrations, defense, health, education, social work and others) grew the fastest. 5 • Indonesia’s current account deficit widened further to 3.6 percent of GDP in Q4 from 3.3 percent in Q3. The widening of the CAD was driven by the increase in goods trade deficit, due to the significant reduction in the -5 non-oil and gas trade surplus, as non-oil and gas exports fell larger than Error & omissions imports. The improvement in the primary income balance and services trade Capital & financial account balance could not offset the increase deficit in the goods trade balance. Current account Overall balance Overall, the balance of payments (BOP) recorded a surplus supported by a -15 widening of the capital and financial accounts surplus, mainly due to an Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 rebound in portfolio investment inflows and the issuance of global bonds both Source: BI; World Bank staff calculations by the government and private sector. Inflation continued to ease in January • In January, headline inflation eased to 2.8 percent yoy. Food price (percent yoy) inflation continued to moderate to 2.0 percent after reaching 3.4 percent in December, contributing the most to the softening of headline inflation. Both 12% administered price inflation and core inflation remained steady at 3.4 percent 10% Administered and 3.1 percent, respectively. 8% • The Nikkei/Markit Indonesia Manufacturing Purchasing Managers’ Index fell from 51.2 in December to 49.9 in January. This was the first 6% Food time the economy recorded a contraction after posting expansions in the past Headline 4% 12 months. Although output volumes were unchanged, overseas and domestic sales softened and new orders weakened. 2% Core • The consumer confidence index eased to 125.5 in January from 127.0 0% in December. This was mainly caused by less optimism on income growth -2% and that consumer were less incline to buy durable goods. However, the Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 consumers expect that there will be lower pressure of the prices growth in the next 6 months (February to July 2019). Meanwhile, retail sales growth Source: BPS; World Bank staff calculations eased to 4.8 percent yoy in January from 7.7 percent in December, which was a 7-month high. Indonesian financial assets recorded strong outcomes (index, February 10, 2017=100, LHS; IDR thousands • Official reserve assets decreased by USD 597 million to USD 120.1 per USD and percent, RHS) billion at the end of January. The decrease was mainly due to government external debt payments. The reserve asset position was equivalent to the 130 IDR 000 per USD (RHS) 16 financing of 6.7 months of imports or 6.5 months of imports and government 120 14 external debt payment. 110 • Indonesian financial assets recorded strong outcomes. The Rupiah 100 Jakarta Composite Index 12 appreciated by 0.6 percent against the US dollar in the 30 days to February 90 5-yr IDR government bond 10 11. The Jakarta Composite Index rose by 2.1 percent over the same period. 80 yield (RHS) Bond yields, on average, decreased across all tenors. 70 8 60 • Bank Indonesia (BI) held its 7-Day Reverse Repo Rate at 6.00 percent 6 50 in January. BI also maintained the Deposit Facility (DF) and Lending Facility (LF) rates at 5.25 percent and 6.75 percent, respectively. 40 4 Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 Source: BI; JSX; World Bank staff calculations