INDONESIA ECONOMIC QUARTERLY MARCH 2013 PRESSURES MOUNTING Jim - - PowerPoint PPT Presentation

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INDONESIA ECONOMIC QUARTERLY MARCH 2013 PRESSURES MOUNTING Jim - - PowerPoint PPT Presentation

Feb 02, 2024 178 likes •413 views

INDONESIA ECONOMIC QUARTERLY MARCH 2013 PRESSURES MOUNTING Jim Brumby, PREM Sector Manager & Lead Economist Paramadina Public Policy Institute, March 2013 www.worldbank.org/id MARCH 2013 IEQ LAUNCH PRESENTATION Steady recent economic growth,

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INDONESIA ECONOMIC QUARTERLY MARCH 2013

Jim Brumby, PREM Sector Manager & Lead Economist Paramadina Public Policy Institute, March 2013

PRESSURES MOUNTING

www.worldbank.org/id

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MARCH 2013 IEQ LAUNCH PRESENTATION

Steady recent economic growth, but pressures mounting Strong performance can continue but will require policy progress in key areas More evidence on the need and scope for progress in these areas

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INDONESIA’S ECONOMY CONTINUES TO PERFORM WELL

3 6 9 12 15 3 6 9 12 15 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Percent Percent China India Indonesia Malaysia Major Trading Partners USA

Source: CEIC; World Bank Global Economic Prospects, January 2013, and East Asia Update, December 2012

Real GDP growth, year-on-year

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SLIDE 4

MOUNTING PRESSURES

  • 1. Investment growth cooling; public infrastructure lagging
  • 2. Real sales and nominal GDP growth: moderating
  • 3. External balances: no relief
  • 4. Fiscal sector: burdened by energy subsidies
  • 5. Poor and vulnerable households: slower pace of

improvement

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INVESTMENT GROWTH: MODERATING

Source: CEIC; World Bank staff calculations

Year-on-year growth

2 4 6 8 10 12 14

  • 40
  • 20

20 40 60 80 Mar-09 Dec-09 Oct-10 Jul-11 Apr-12 Jan-13 Percent Percent Capital goods imports (3-month moving average) Real fixed investment

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EXTERNAL BALANCES: STILL UNDER PRESSURE, RECENTLY DUE ESPECIALLY TO OIL & GAS TRADE DEFICIT

Source: CEIC; World Bank staff calculations

  • 2
  • 1

1 2 3 4 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Non-oil and gas balance Oil and gas balance USD billion USD billion

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EXTERNAL BALANCES: KEEPING THE NEED TO SUPPORT FDI AND PORTFOLIO FLOWS IN FOCUS

  • 12
  • 6

6 12 18

  • 12
  • 6

6 12 18 Dec-09 Dec-10 Dec-11 Dec-12 Net direct investment Net portfolio Net other capital Current account Overall balance Basic balance USD billion USD billion

Source: CEIC; World Bank staff calculations

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GROWTH OUTLOOK: MEASURED REAL FINAL SALES GROWTH DECLINING

2 4 6 8 10 2 4 6 8 10 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Real final sales Real final domestic sales Real GDP Percent Percent

Note: Real final (domestic) sales = Measured private consumption + government consumption + fixed investment + net exports (-net exports) Source: CEIC; World Bank staff calculations

Year-on-year growth

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GROWTH OUTLOOK: NOMINAL GDP GROWTH MODERATING

5 10 15 20 25 30 5 10 15 20 25 30 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Real GDP Nominal GDP Percent Percent

Source: CEIC; World Bank staff calculations

Year-on-year growth

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NOMINAL INCOME GROWTH: SLOWER IN 2012

5 10 15 20 25 30 35 40 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2000 2002 2004 2006 2008 2010 2012 GDP per capita (constant 2012 USD, LHS) GDP per capita (current price USD, LHS) GDP per capita (current price IDR, RHS) USD per capita IDR per capita (million)

Source: CEIC; World Bank staff calculations

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INFLATION: FOOD PRICE PRESSURES

Source: CEIC; World Bank staff calculations

2 4 6 8 20 40 60 80 Green Chili Red Chili Garlic Onion Food inflation excl items* Food inflation Change in CPI from Dec 2012 to Feb 2013 (LHS) Change in CPI from Dec 2012 to Feb 2013 (RHS) Percent Percent

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ACHIEVING OFFICIAL POVERTY REDUCTION TARGETS WILL BE A STRETCH

  • 1.5
  • 1.0
  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 2 4 6 8 10 12 14 16 18 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Official Poverty (LHS) RPJM High Target RPJM Moderate Target Annual Change in Poverty Change in Poverty rate, percent Poverty rate, percent

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FISCAL SECTOR: BURDENED BY INEFFICIENT SPENDING

50 100 150 200 250 300 350 50 100 150 200 250 300 350 Personnel Material Capital Int. Payments Energy subsidy Social 2011 Actual Audited 2012 Preliminary Actual 2013 Budget IDR trillion IDR trillion

Source: MoF; World Bank staff calculations

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MARCH 2013 IEQ LAUNCH PRESENTATION

Steady recent economic growth, but pressures mounting Strong performance can continue but will require policy progress in key areas More evidence on the need and scope for progress in these areas

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NOTWITHSTANDING THE PRESSURES, STRONG PERFORMANCE AND PROGRESS CAN CONTINUE…

Note: CPI is annual average. Government figures for Budget deficit: 2012 is preliminary outturn, 2013 is approved Budget and 2014 is from the 2013 Draft Budget Financial Note Source: Ministry of Finance, BPS, Consensus Forecasts Inc., World Bank staff calculations

2011 2012 2013 2014 Gross domestic product 6.5 6.2 6.2 6.5 Consumer price index 5.2 4.3 5.5 5.2 Budget balance ‐1.2 ‐1.8 ‐1.7 ‐1.4 Major trading partner growth 3.6 3.4 3.7 4.0

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…BUT THIS REQUIRES THAT POLICY ADDRESSES MOUNTING PRESSURES

  • Investment:
  • Sustain private investment by providing policy

certainty; making ongoing improvements in regulatory framework

  • Work to meet the public infrastructure investment

challenge

  • Trade and external balances:
  • Focus on competitiveness rather than import

restrictions

  • Fiscal sector:
  • Fuel subsidy reform
  • Households:
  • Food: focus on availability; redirect subsidies

Timely responses tend to yield results

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MARCH 2013 IEQ LAUNCH PRESENTATION

Steady recent economic growth, but pressures mounting Strong performance can continue but will require policy progress in key areas More evidence on the need and scope for progress in these areas

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25 50 75 100

SUCCESSFUL MANUFACTURES RELY ON IMPORTS

25 50 75 100 Agriculture Mining Food prod TCF Wood&paper Chemicals&mi… Basic metal Machinery Electric eq. Transport eq. Other Domestic goods Domestic services Foreign goods Foreign services Percent

Indonesia China Value-added in manufactured goods exports

Source: OECD and WTO Trade in Value-Added (TiVA) statistics

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FDIHAS ROOM TO INCREASE

2 4 6 8 2 4 6 8 2002-2004 2005-2008 2010-2011 Percent Percent

Source: CEIC; World Bank staff calculations

Inbound FDI, percent of GDP

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PUBLIC INFRASTRUCTURE NEEDS A FURTHER BOOST

100 200 300 400 500 2 4 6 8 10 1995 1997 1999 2001 2003 2005 2007 2009 2011 Percent of GDP IDR trillion Real spending (2000 prices, RHS) Infrastructure investment to GDP (LHS)

Note: Real value calculated using investment GDP deflator Source: Infrastructure investment data as detailed in Box 5 of March 2013 IEQ and World Bank staff calculations

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TAP INTO THE POTENTIAL OF FAST URBANIZATION

Source: Indonesia: The Rise of Metropolitan Regions. The World Bank (2012)

Agglomeration areas in Indonesia 15 25 35 45 55 15 25 35 45 55 5.5 6 6.5 7 7.5 8 8.5 9 9.5 Percent Ln GDP per capita (PPP, 2005 prices) Indonesia China India Philippines Thailand Vietnam Per capita GDP against urbanization rates

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SUMMARY: MARCH 2013 IEQ PRESSURES MOUNTING

  • This edition of the IEQ contains analysis on:
  • Fiscal policy – analysis of the 2012 Budget outturn
  • Trade dynamics – insights from new trade in value‐added data for

Indonesia

  • Urbanization – harnessing the potential of agglomeration areas
  • Infrastructure investment spending – trends and the need for more
  • Key messages:
  • Steady recent economic performance with base case for this to

continue

  • But there are some mounting pressures and the risks to the economy

are to the downside

  • Timely policy responses tend to yield good results