INDONESIA MONTHLY ECONOMIC WRAP February 2018 Summary of key economic developments GDP growth in Q4 recorded an uptick Indonesia’s economy expanded 5.2 percent year -on-year (yoy) in Q4, faster (contribution to growth, percent yoy) than the 5.1 percent growth in Q3, bringing 2017 annual GDP growth to 5.1 Change in inventories Stat. discrepancy* percent, the highest in 4 years. The uptick in GDP growth was driven by Net exports Investment Government consumption Private consumption robust domestic demand growth. Investment growth accelerated to nudge GDP 2017 growth to a five-year high. Private consumption growth also edged up 8 compared to Q3. While exports and imports growth slowed in Q4, both expanded for the year as a whole, the first time since 2014.The balance of 6 payments surplus narrowed as the current account deficit widened (due to 4 imports growing faster than exports) and the financial account surplus narrowed. Monthly indicators were a little mixed in January. Indonesia’s 2 Purchasing Managers Index increased compared to December but remained a tick under 50 (the benchmark for moving into expansionary territory). 0 Inflation eased despite an increase in food prices while core and administered prices growth also plateaued. Despite the increased volatility -2 in global financial markets, Indonesian financial assets performed relatively Dec-14 Sep-15 Jun-16 Mar-17 Dec-17 well over the past month with the Jakarta Composite Index recording gains, Source: BPS; World Bank staff calculations bond yields falling and the Rupiah depreciating only around 0.5 percent. The current account deficit widened in Q4 (USD billion) Further details Current account Direct investment • Portfolio investment Other investment The Indonesian economy grew 5.2 percent yoy in Q4, faster than the Overall balance Basic balance 5.1 percent in Q3, the highest growth in six quarters and above 15 consensus forecasts of 5.1 percent. The uptick in GDP growth was driven by an increase in domestic demand, comprising of stronger investment, as well as stronger private and government consumption. Export and import growth slowed in Q4, but continued to be relatively robust on the back of a sustained recovery in global trade and commodity prices. Net exports 0 dragged on growth in Q4, as imports grew faster than exports, partly reflecting higher investment in machines and equipment. On the production side, the manufacturing sector continued to contribute the most to growth (1 percentage point in Q4), but construction and other services sectors (public administration, defense, health, education, social work and others) recorded -15 Dec-14 Dec-15 Dec-16 Dec-17 robust growth too. For 2017 as a whole, annual GDP growth accelerated to 5.1 percent from 5.0 percent in 2016, the highest in four years . Source: BI; World Bank staff calculations Monthly indicators were mixed • In the Q4, the balance of payments surplus narrowed to USD 1 billion, (USD billion) as the current account deficit widened substantially and financial account surplus shrank. The current account deficit widened to 2.2 percent 70 Investment credit Commercial vehicle sales 12 of GDP, from 1.7 percent of GDP in Q3, due to a lower goods trade balance growth (RHS) surplus, as imports grew faster than exports, in line with strong investment 50 10 growth in Q4. Meanwhile, financial account surplus nearly halved from 4.1 percent of GDP in Q3 to 2.5 percent of GDP in Q4 as the direct investment 30 8 and portfolio investment surplus narrowed following outflows in foreign direct investment in the oil and gas sector as well as outflows in foreign capital, 10 6 particularly in rupiah denominated securities. • High-frequency indicators were a mixed. Investment credit growth -10 Cement sales Nominal capital 4 continued its downward trajectory despite two policy rate cuts by Bank -30 goods imports (RHS) 2 Indonesia in Q3 2017. Cement sales growth remained flat while commercial vehicle sales growth dipped after a strong reversal in Q3. -50 0 • Retail sales growth accelerated to 1.8 percent yoy in Q4 2017 from 0.2 Dec-16 Apr-17 Aug-17 Dec-17 percent in Q3 2017. Source: BPS; World Bank staff calculations • The Nikkei/Markit Manufacturing Purchasing Managers’ Index in Note: Investment and nominal capital goods imports are measured in yoy terms. All other variables are measured in January was 49.9. While this was higher than the 49.3 recorded in 3-month moving average (mma) percent yoy terms December, it is still lower than the benchmark expansionary threshold of 50. Indonesian financial assets remain sound • Headline inflation in January 2018 eased to 3.3 percent yoy from 3.6 (index, February 12, 2016=100, LHS; IDR thousands percent in December 2017. This was despite an increase in food prices and per USD and percent, RHS) in particular, a surge in rice prices. 160 16 • Indonesian financial assets performed well over the past month. The IDR 000 per USD (RHS) Jakarta Composite Index strengthened by 3.2 percent in the 30 days to 140 14 February 15, 2018 despite a notable dip (1.7 percent compared to the day before) on February 5. The Rupiah depreciated slightly, by 0.5 percent, 120 12 against the U.S. dollar. Meanwhile, bond yields, on average and across all Jakarta Composite Index 10 100 tenors, declined, with yields on 10-year bonds recording the largest decline of 15 basis points. 80 8 • Official reserve assets reached USD 131.98 billion in January 2018, higher than USD 130.2 billion recorded in December 2017. 60 6 5-yr IDR government • Japan Credit Rating Agency, Ltd. upgraded Indonesia’s sovereign debt 40 bond yield (RHS) 4 rating from BBB-/ Positive Outlook to BBB/Stable Outlook on February Feb-16 Oct-16 Jun-17 Feb-18 8th, 2018. Source: BI; JSX; World Bank staff calculations