INDONESIA January 2019 Summary of key economic developments Manufacturing PMI rose in December At the end of 2018, Indonesia’s real sector outcomes recorded strong (index, LHS) readings, with the Manufacturing Purchasing Managers’ Index (PMI) ticking 53 up and motorcycle sales growth as well as consumer confidence index remaining strong. Headline inflation eased as food prices grew slower in 52 December, while administered prices inflation accelerated and core inflation ticked up. Foreign exchange reserves continued to increase at the end of 51 December, as a result of oil and gas foreign exchange receipts, global bonds issuance and withdrawal of government external debt. Indonesian financial 50 assets also posted solid recoveries, with the Jakarta Composite Index rising significantly in the 30 days to January 16, the Rupiah appreciating, while 49 bond yields decreased across all tenors over the same period. 48 Further details Dec-17 Jun-18 Dec-18 • The Nikkei/Markit Indonesia Manufacturing Purchasing Managers’ Source: CEIC; World Bank staff calculations Index rose to a four-month high from 50.4 in November to 51.2 in December. Total new business rose in December, driven by stronger Inflation eased in December domestic demand. However, the decreasing sales to overseas markets (percent yoy) continued to be a drag, due to tough market competition. 12% • Car sales grew by 4.4 percent yoy in November, slower than 12.3 10% Administered percent recorded in October. Meanwhile, motorcycle sales also grew by 8.6 percent in November, faster than 5.3 percent recorded in October. 8% Food 6% • Consumer confidence index rose from 122.7 in November to 127.0 in Headline December, mainly due to better current and expected economic conditions, 4% employment, as well as greater confidence in buying durable goods. These factors have offset the consumers’ concern over possible higher non- 2% Core subsidized fuels prices in the next 3 months (January to March). 0% • In December, inflation eased to 3.1 percent yoy from 3.2 percent in -2% November, bringing the average annual inflation in 2018 to 3.2 percent, Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 hitting the lowest historical level. Low food price inflation, at 3.4 percent after reaching 4.2 percent in November, contributed the most to the softening Source: BPS; World Bank staff calculations of headline inflation. Overflowing stock of red chili significantly brought down the food price inflation. Administered prices inflation accelerated from 3.1 Trade balance continued to record a deficit in percent in November to 3.4 percent in December due to a surge in the air December transportation costs; while core inflation ticked upwards from 3.0 percent to (USD billion) 3.1 percent. Total exports (fob, LHS) Total imports (cif, LHS) • Trade balance recorded a deficit of USD 1.1 billion in December, 20 Trade balance (RHS) 2 bringing the annual 2018 trade deficit to USD 8.6 billion, the highest level recorded. Exports declined by 4.6 percent yoy while imports grew by 16 1 1.2 percent in December. In cumulative annual terms, exports growth slowed down from 16.3 percent in 2017 to 6.7 percent in 2018, while imports growth 12 0 accelerated from 15.7 percent to 20.2 percent over the same period. The trade balance plunged from a surplus of USD 11.8 billion in 2017 to a deficit 8 -1 of USD 8.6 billion in 2018. The wider trade deficit is mainly due to the moderation of non-oil and gas exports growth, combined with the 4 -2 acceleration of capital goods imports growth. • Official reserve assets increased by USD 3.4 billion to USD 120.7 billion 0 -3 Dec-17 Jun-18 Dec-18 at the end of December. The increase was mainly due to oil and gas foreign Source: BPS; World Bank staff calculations exchange receipts, global bonds issuance and government foreign loans. The reserve asset position was equivalent to financing of 6.7 months of Indonesian financial assets recorded strong outcomes imports or 6.5 months of imports and government external debt payment. (index, January 16, 2017=100, LHS; IDR thousands per • Indonesian financial assets recorded strong outcomes. The Rupiah USD and percent, RHS) appreciated by 3.2 percent against the US dollar in the 30 days to January 140 16 16. The Jakarta Composite Index rose by 5.3 percent over the same period. IDR 000 per USD (RHS) 130 Bond yields, on average, decreased across all tenors. 14 120 • Bank Indonesia (BI) held its 7-Day Reverse Repo Rate at 6.00 percent 110 12 in January. BI also maintained the Deposit Facility (DF) and Lending Facility 100 Jakarta Composite Index (LF) rates at 5.25 percent and 6.75 percent, respectively. 90 10 80 5-yr IDR government • Starting from 2 January 2019, BI will no longer publish overnight JIBOR 70 bond yield (RHS) 8 (Jakarta Interbank Offered Rate). It is expected that existing financial 60 contracts using overnight JIBOR will shift to IndONIA (Indonesia Overnight 6 50 Index Average). 40 4 • Statistics Indonesia (BPS) recorded a poverty rate of 9.66 percent in Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 September 2018, down from 9.82 percent recorded in March. Source: BI; JSX; World Bank staff calculations