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WB cuts RI growth forecast
The World Bank (WB) has cut its 2016 economic growth forecast for Indonesia as uncertainties in the global economy are likely continue to cast a shadow over the countryâs exports and foreign investment
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The World Bank (WB) has cut its 2016 economic growth forecast for Indonesia as uncertainties in the global economy are likely continue to cast a shadow over the country's exports and foreign investment.
The WB predicts that Indonesia's gross domestic product (GDP) will hover at 5.3 percent next year, as stated in its latest East Asia and Pacific (EAP) Economic Update, published on Monday.
The forecast is lower than its previous prediction of 5.5 percent for 2016, which was contained in its Indonesia Economic Quarterly (IEQ) report, issued in July, but is at the same level as the government's target for next year. The overall 2015 forecast, on the other hand, is unchanged at 4.7 percent.
According to the new EAP report, weak commodity prices are expected to continue into 2016 putting pressure on corporate profits and incomes in Indonesia, a major commodity-exporting country, thus constraining domestic demand growth.
'Commodity-exporting countries, which account for about one-third of developing-country GDP, will continue to struggle to adjust to low commodity prices,' the report says.
'This outlook is set against a backdrop of weak global trade and a trend slowdown in developing-country growth related to structural issues, including slowing growth in working-age populations, productivity and investment,' it adds.
The WB attributes the 2016 growth projection to the ongoing downturn in China, which has impacted Indonesia and other countries in the East Asia and Pacific region. Growth in China itself is projected to slow to 6.7 percent next year from 6.9 percent in 2015.
'If China's growth were to slow more than expected, the effects would be felt in the rest of the region, especially in countries linked to China through trade, investment and tourism,' the report explains.
Indonesia's close links to China are indeed reflected in the latest trade, investment and tourism statistics.
In terms of trade, China is now one of Indonesia's major partners, with non-oil and gas exports to the former accounting to US$8.87 billion throughout the year, the second-largest export destination after the US, according to data from the Central Statistics Agency (BPS).
China was also included on the list of top-10 countries with the highest foreign direct investment (FDI) realization between January and June.
China's realized FDI in Indonesia sat in 10th position, amounting to $160.27 million, channeled through 407 projects, as revealed by Investment Coordinating Board (BKPM) data.
The number of Chinese tourists accounted for almost 15 percent of the total foreign visitors in August, the second-highest figure after Singaporeans.
Meanwhile, the WB highlights domestic policy as another challenge next year. 'Since monetary policy seems constrained in the short term, the focus is on the fiscal sector and the regulatory environment,' it wrote in the report.
According to the WB, the government has to push through with its ambitious infrastructure development plans and further improve business conditions to attract private investment, so that it can achieve a sustainable return to higher and more inclusive growth.
'In this respect, budget execution is a key challenge, especially because local governments have limited implementation capacity, but are expected to receive higher infrastructure spending allocations in 2016,' the report says.
It welcomed the recent issuance of economic policy packages as an attempt to improve the economy.
'There are some promising signs, related in particular to issues around structural reform, opening of import side and deregulation of investments, but we're really watching to see the full extent of the packages,' said Hans Anand Beck, a WB senior country economist.
Commenting on the projected growth cut, Bank Central Asia (BCA) chief economist David Sumual also acknowledged the 'China factor'. 'The wild card is China, it's difficult to gauge what will happen there,' he said.
He added that Indonesia's growth had been in line with China's for the past 10 years and urged the country to find new sources of growth due to greater external uncertainty.
Meanwhile, Bank Danamon economist Dian Ayu Yustina agreed that external conditions were among the main economic hurdles. 'Besides China, commodity prices and the weak rupiah can hurt consumer spending once they are passed on in prices,' she said in a message.
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