INDONESIA May 2019 Summary of key economic developments Robust consumption and net exports drove GDP in Indonesia’s economy expanded by 5.1 percent yoy in Q1 2019 while the Q1 2019 current account deficit narrowed to 2.6 percent of GDP. Indonesia’s real (contributions to growth yoy, percentage points) sector recorded mixed outcomes and headline inflation picked up in April. Change in inventories Stat. discrepancy* Revenue growth slowed while social spending and personnel spending Net exports increased in the lead up to the elections. Foreign exchange reserves 8 Investment Government consumption decreased at the end of April, while Indonesian financial assets recorded Private consumption weaker outcomes with the Rupiah depreciating, the Jakarta Composite Index 6 GDP declining and bond yields increasing across all tenors in the 30 days to May 15. 4 Further details 2 • Indonesia’s economy expanded by 5.1 percent yoy in Q1 2019, a tad 0 slower than the 5.2 percent recorded in Q4 2018. Among the components, the Q1 outcome was broadly in line with softening —but still robust—fixed -2 investment, weakening exports and imports, strengthening private and Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 government consumption. For the first time in ten quarters, both exports and Source: BPS; World Bank staff calculations imports of goods and services contracted, on the back of subdued commodity prices and escalating trade tensions. On the production side, Current account deficit narrowed in Q1 2019 growth was broad-based, but growth slowed in the agriculture, (USD billion) manufacturing and electricity, gas and water sectors. Gross value added Error & omissions (GVA) growth remained unchanged at 4.9 percent in Q1. 15 Capital & financial account Current account • Indonesia’s real sector recorded mixed outcomes. Bank Indonesia’s (BI) Overall balance Consumer Confidence Index rose to 128.1 in April from 124.5 in March as consumers’ confidence about current incomes and buying conditions 5 increased. BI’s Retail Sales Index grew 5.8 percent yoy in April – driven mainly by strong sales of clothing as well as motor vehicle parts and accessories. In contrast, the Nikkei Indonesia Manufacturing Purchasing Managers’ Index (PMI) fell from 51.2 in March to 50.4 in April , due to a -5 moderation in output and employment growth. • Indonesia’s current account deficit narrowed considerably to 2.6 percent of GDP in Q1 from 3.6 percent in Q4 2018. The narrowing of the -15 CAD was driven by a turnaround on the trade balance from deficit to surplus Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 as a result of the deeper fall of imports than exports in Q1 compared to Q4 Source: Bank Indonesia 2018 level, partly in response to the government’s policy to control the An increase in food prices drove up headline inflation imports. However, the income and service deficits continued to widen. The (percent yoy) capital and financial account posted a significantly narrower surplus compared to Q4 2018, mainly due to the decline in net portfolio investment 12 and net other investment. Overall, the balance of payments (BOP) recorded a surplus supported by an improvement in the CAD. 10 Administered • In April, headline inflation picked up to 2.8 percent yoy from 2.5 percent 8 in March. The April outcome was driven by an increase in food prices, which 6 Food was in turn due to higher raw food price inflation, which soared from 0.6 Headline percent yoy in March percent to 2.3 percent in April. Administered price 4 inflation eased from 3.3 percent to 3.2 percent due to a decrease in fuel and 2 electricity rates, offsetting the increase in airline fares. Core inflation edged Core up from 3.0 percent to 3.1 percent, mainly due to higher prices of house 0 rentals and motor vehicles. -2 • Fiscal revenue growth in Q1 2019 moderated to 4.9 percent while Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 expenditure growth accelerated to 7.7 percent. Revenue growth eased due to a contraction in VAT collections and slowing income tax growth. The Source: BPS; World Bank staff calculations increase in expenditure was mainly due to higher social spending Indonesian financial assets recorded weak outcomes • Official reserve assets decreased by USD 245 million to USD 124.3 (index, May 15, 2017=100, LHS; IDR thousands per billion at the end of April. The decline was mainly due to a reduction in oil USD and percent, RHS) and gas foreign exchange receipts, other foreign exchange receipts as well as government external debt payments. The reserve asset position was 130 IDR 000 per USD (RHS) 16 equivalent to financing of 7 months of imports or 6.8 months of imports and 120 government external debt payments. 14 110 • Indonesian financial assets recorded weak outcomes. The Rupiah 100 12 depreciated by 2.7 percent against the US dollar in the 30 days to May 15, Jakarta Composite Index 90 reaching IDR 14,448 per USD. The Jakarta Composite Index declined by 7.1 10 80 5-yr IDR government percent and bond yields, on average, increased across all tenors. 70 bond yield (RHS) 8 • Bank Indonesia (BI) held its 7-Day Reverse Repo Rate at 6.00 percent 60 in April. BI also maintained the Deposit Facility (DF) and Lending Facility 6 (LF) rates at 5.25 percent and 6.75 percent, respectively. 50 40 4 May-17 Nov-17 May-18 Nov-18 May-19 Source: BI; JSX; World Bank staff calculations