Transcript Indonesia`s economy in late 2009

Indonesia Economic Quarterly
Back on track?
William E. Wallace
Lead Economist
World Bank
16 December 2009
Jakarta Indonesia
Indonesia’s economy, back on track?
 Indonesia’s real economy has returned to solid
growth
 But financial markets remain volatile
 And longer-term reform is needed to maintain the
momentum
Indonesia’s economy in late 2009
Back on track
1. Indonesia’s real economy has continued the gradual recovery
trend evident mid-year
2. Growth has been far less volatile than elsewhere
3. But financial markets have been more volatile, strengthening by
more than most others
4. Inflows of capital in search of Indonesia’s higher yields has
driven much of this strength, and present a future risk
Indonesia’s economy in late 2009
Growth has returned to pre-crisis averages
 Growth picked up further in Q3, continuing the earlier trend
 Growth remained broad-based: consumption was robust, investment
picked up and net exports contributed positively
 Industrial GDP while down year on year picked up in the 3rd quarter in
seasonally adjusted terms as compared to services, which were
down
4
Per cent
(aggregate GDP growth)Per cent
8
Year on year (RHS)
3
6
QoQ seas.
Average*
adjust (LHS) QoQ grow th
(LHS)
2
1
0
Sep-02
4
2
Jun-04
Mar-06
Sources: BPS via CEIC, World Bank
Dec-07
0
Sep-09
Indonesia’s economy in late 2009
…trade flows are recovering…
 Unlike the domestic economy, trade flows were significantly disrupted by the
global economic downturn
 Export values fell by 43%; imports by 56%
 The collapse in commodity prices explain most of this decline
 Flows have since partially recovered, with the recovery in commodity
prices and external demand
(monthly merchandise trade flows)
14
USD bn
USD bn
(global commodity prices, 100=June 2007)
Index
Index
14
190
12
12
160
160
10
10
130
130
8
8
July 08
Feb 09
190
Exports
Energy
Exports
100
Im ports
6
4
Oct-07
6
Apr-08
100
Non-energy
Oct-08
Apr-09
4
Oct-09
70
40
Oct-07
70
Apr-08
Sources: CEIC, Haver Analytics, BPS, JP Morgan, World Bank
Oct-08
Apr-09
40
Oct-09
Indonesia’s economy in late 2009
…and other indicators remain solid
120
Index
 Other indicators show conditions
have stabilized at relatively high
levels
(abstracting from the volatility
around the Idul Fitri holidays)
50
%
40
30
110
240
Index
BI consumer
confidence index
20
200
90
180
80
160
70
140
Danarakesa consumer survey (LHS)
2005
Electricity use
by industry
220
(SA; RHS)
(LHS)
100
60
Cement
sales
BI retail
sales index
800
2006
2007
2008
120
2009
'000
'000
80
Motor cycles
(LHS)
600
60
400
40
10
0
-10
-20
-30
2005
2006
2007
Motor vehicles
(RHS)
200
Industrial
production
2008
2009
0
Oct-05
Sources: BPS, GAI, PLN, ICA and Astra via CEIC,
Danarakesa, World Bank
20
0
Oct-06
Oct-07
Oct-08
Oct-09
Indonesia’s economy in late 2009
Inflation paused in Q4
 After building momentum in Q3, inflation was unexpectedly weak in
October and November
 2.4% inflation, is a decade low
 The appreciating rupiah, and improved food supply conditions, are
allowing retailers to reverse their Ramadan- and Idul Fitri related
price rises
5
4
3
2
1
Per cent
Per cent
Poverty basket
inflation RHS)
Inflation YoY
(RHS)
Inflation MoM
(LHS)
15
12
Core
inflation
(RHS)
9
6
3
0
0
-1
-3
Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul 09 Dec 09
Sources: BPS, CEIC, World Bank estimates of poverty basket inflation
Indonesia’s economy in late 2009
…and credit is picking up
 New loans bounced back in September to 2008 levels
 …despite lending rates remaining high
(Q-o-Q credit growth and credit approvals)
400
IDR trillion(quarterly)
Percent QoQ
350
12
(interest rates)
6.00
Percent
Percent
10
Lending Rates
(RHS)
5.80
300
14
8
CreditGrowth
(RHS)
250
200
6
5.60
12
Net Interest Margin
(LHS)
4
5.40
150
16
New Loan Approvals
(LHS)
Deposit Rates
(RHS)
2
100
0
50
-2
Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09
5.20
8
BI Policy Rate
(RHS)
5.00
6
Sep-07
Sources: BI via CEIC
10
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Financial markets remain unstable
While significant capital inflows…
 Large flow of offshore funds into Indonesian financial assets recently
 USD 6.5 bn since March; USD 2.5 bn in September and October alone
 Invested in government bonds (SUNs), SBIs, and the stock market
 Supported rupiah’s appreciation against the weakening USD
 22% since March, stabilizing around 9.500 per USD from early October
 Despite BI allowing reserves to accumulate (to USD 65.8 bn by end
November)
250
IDR trillion
IDR per USD
8500
9500
200
Total Foreign
Capital Stock
(LHS)
IDR/USD spot
(RHS)
10500
150
11500
IDR Appreciation
100
06-Oct-08
12500
06-Jan-
06-Apr-
Sources: BI, CEIC, and World Bank
06-Jul-
06-Oct-
Financial markets remain volatile
…have supported financial asset prices
 This has supported a rally on equity and bond markets to early October
 Since then, markets have since tracked sideways
 Unlike elsewhere in the region, these flows have not affected other
asset prices (eg, urban property)
(Regional stock market indices)
115
Index 2 Jan 08 = 100
Index 2 Jan 08 = 100
115
24
Percent
24
March 2009
Thailand SET
100
(local currency bond yields)
Percent
21
Singapore SGX
Jakarta JCI
21
100
18
85
85
70
70
18
Indonesia
15
15
12
12
Philippines
55
40
55
Shanghai
Composite
9
9
Thailand
6
6
Malaysia
40
Bombay BSE
3
3
United States
25
Jan-08
25
Apr-08
Jul-08
Oct-08
Feb-09
May-09
Aug-09
Dec-09
Sources: CEIC, World Bank
Sources: BI, CEIC, and World Bank
0
Jan-08
0
Apr-08
Jul-08
Oct-08
Feb-09
May-09
Aug-09
Dec-09
Indonesia’s economy in late 2009
Back on track?
 Outlook remains for gradual pick-up in growth
 Outlook slightly stronger than September: better domestic
performance in Q3, improved outlook for trading partners, and
higher commodity prices
 Support gradual reduction in poverty rates
 But significant risks to the outlook remain
 Unwinding of global fiscal and monetary stimulus/imbalances could
trigger risk aversion once again international capital markets
 While domestic developments also risk creating uncertainty for
investors
2008
2009
2010
2011
Gross Domestic Product
(annual % change)
6.1
4.5
5.6
6.0
Consumer price index
(annual % change)
9.8
4.8
5.4
5.9
Poverty rate
(% population)
15.4
14.2
13.5
11.4
Balance of payments
(USD bn)
-1.9
11.8
5.0
3.0
Budget balance
(% GDP)
-0.1
-2.3
-1.7
--
Major trading partner growth
(annual % change)
2.4
-0.9
3.8
3.9
Sources: BPS, BI, CEIC, and World Bank projections
Staying on track into the medium term
The demographic window of opportunity
 Indonesia has been enjoying a demographic dividend
 But the share of the population at working age is nearing its peak
 Between 2020 and 2025 Indonesia’s dependency ratio will begin to
rise again, with a growing share of elderly citizens
0.90
70.0
0.80
60.0
50.0
40.0
0.70
Dependency
ratio (RHS)
Working age
(15 to 64) (LHS)
0.60
0.50
Children
(0 to 14)
(LHS)
30.0
20.0
0.40
0.30
0.20
Elderly
(65 and over) (LHS)
10.0
0.10
Sources: BPS and UN statistics
2050
2045
2040
2035
2030
2025
2020
2015
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
0.00
1955
0.0
Dependency ratio (young and
elderly to working age)
80.0
1950
% of population
 …making the next decade critical to make the most of the
demographic dividend and prepare for an aging population
Staying on track into the medium term
…demands many new good quality jobs
 The expanding working age population
will need new, good quality jobs
 The employment rate, after falling
for 6 years, trended upward since
2006. Employment rate rose from
61.5% in August 2008 to 62.1% in
August 2009.
 But most of the labor force…and new
jobs are informal
 Around 60% of the labor force is
informal
(Employment % of working age)
%
65
1990-1997
64
1997-1999 1999-2003
2003-2008
63
62
61
60
59
58
1990
1992
1994
1997
1999
2001
2003
2005
2006
(mean log monthly wages)
8.1
8
7.9
7.8
 And informal jobs generally offer
poorer pay and conditions
 But the distinction is not sharp:
many formal sector workers are
little better off than those working
informally
7.7
7.6
7.5
7.4
7.3
7.2
7.1
Permanent
Employees &
Employers
Fixed Term
Contract
Employees
Sources: BPS and World Bank
Employees with Informal workersInformal workers
no Contract (non-agricultural) (agricultural)
2008
Staying on track into the medium term
Indonesia can afford to spend more on development
 Government finances remain in good shape after the crisis
 In our view, and in the medium run, larger deficits, supporting
investment in social welfare and infrastructure, are sustainable
Business as usual scenario
GDP growth (%)
Budget deficit (% GDP)
Public debt to GDP ratio (%)
GoI gross financing needed (IDR trillion)
2010
5.7
-1.7
31.9
224
2011
6.0
-1.4
30.8
228
2012
6.2
-1.1
29.2
223
2013
6.2
-0.9
27.6
226
2014
6.2
-0.8
26.0
258
'Big push' scenario
GDP growth (%)
Budget deficit (% GDP)
Public debt to GDP ratio (%)
GoI gross financing needed (IDR trillion)
2010
5.6
-2.6
32.8
284
2011
6.4
-2.4
32.4
298
2012
6.8
-2.1
31.5
304
2013
7.0
-1.9
30.4
324
2014
7.2
-1.8
29.2
375
Scenario: Baseline/Business as usual
2010
2011
2012
2013
2014
 And more spending on desirable infrastructure and social goods could
Key macro variables (%)
be achieved
through the reallocation of
energy
subsidies
GDP
growth
5.6 distortionary
6.0
6.2
6.2
6.2
GDP deflator growth
8.2
8.2
8.2
8.2
8.2
State
ButBudget
to ensure
the quality of spending in a democratic and decentralized
(% GDP)
Indonesia,
has to be
State
Revenues government effectiveness15.8
15.9enhanced
15.9
16.0
16.0
State Expenditures
17.4
17.8
17.5
17.4
17.2
o/w subsidies
3.3
3.4
3.2
3.1
3.0
Source: World Bank projections
o/w interest payments
1.9
1.8
1.7
1.6
1.5
o/w other
12.2
12.7
12.6
12.7
12.7
Indonesia Economic Quarterly
Back on track?
William E. Wallace
Lead Economist
World Bank
16 December 2009
Jakarta Indonesia