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, 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
INDONESIA’S ECONOMY CONTINUES TO PERFORM WELL Real GDP growth, year-on-year Percent Percent 15 15 12 12 China 9 9 India Indonesia 6 6 Malaysia Major Trading Partners 3 3 USA 0 0 Dec-2009 Dec-2010 Dec-2011 Dec-2012 Source: CEIC; World Bank Global Economic Prospects, January 2013, and East Asia Update, December 2012
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
INVESTMENT GROWTH: MODERATING Year-on-year growth Percent Percent 80 14 Real fixed investment 12 60 10 40 8 20 6 0 4 -20 2 Capital goods imports (3-month moving average) -40 0 Mar-09 Dec-09 Oct-10 Jul-11 Apr-12 Jan-13 Source: CEIC; World Bank staff calculations
EXTERNAL BALANCES: STILL UNDER PRESSURE, RECENTLY DUE ESPECIALLY TO OIL & GAS TRADE DEFICIT USD billion USD billion Non-oil and gas balance Oil and gas balance 4 3 2 1 0 -1 -2 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Source: CEIC; World Bank staff calculations
EXTERNAL BALANCES: KEEPING THE NEED TO SUPPORT FDI AND PORTFOLIO FLOWS IN FOCUS USD billion USD billion Net direct investment Net portfolio Net other capital Current account Overall balance Basic balance 18 18 12 12 6 6 0 0 -6 -6 -12 -12 Dec-09 Dec-10 Dec-11 Dec-12 Source: CEIC; World Bank staff calculations
GROWTH OUTLOOK: MEASURED REAL FINAL SALES GROWTH DECLINING Year-on-year growth Percent Percent 10 10 8 8 6 6 4 4 2 2 0 0 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Real final sales Real final domestic sales Real GDP Note: Real final (domestic) sales = Measured private consumption + government consumption + fixed investment + net exports (-net exports) Source: CEIC; World Bank staff calculations
GROWTH OUTLOOK: NOMINAL GDP GROWTH MODERATING Year-on-year growth Percent Percent 30 30 25 25 20 20 15 15 10 10 5 5 0 0 Dec-04 Dec-06 Dec-08 Dec-10 Dec-12 Real GDP Nominal GDP Source: CEIC; World Bank staff calculations
NOMINAL INCOME GROWTH: SLOWER IN 2012 IDR per capita (million) USD per capita 4,000 40 GDP per capita 3,500 35 (constant 2012 USD, LHS) 3,000 30 GDP per capita (current price IDR, RHS) 2,500 25 2,000 20 GDP per capita 1,500 15 (current price USD, LHS) 1,000 10 500 5 0 0 2000 2002 2004 2006 2008 2010 2012 Source: CEIC; World Bank staff calculations
INFLATION: FOOD PRICE PRESSURES Percent Percent 80 8 Change in CPI from Dec 2012 to Feb 2013 (LHS) 60 6 Change in CPI from Dec 2012 to Feb 2013 (RHS) 40 4 20 2 0 0 Green Red Chili Garlic Onion Food Food Chili inflation inflation excl items* Source: CEIC; World Bank staff calculations
ACHIEVING OFFICIAL POVERTY REDUCTION TARGETS WILL BE A STRETCH Poverty rate, percent Change in Poverty rate, percent 20 2.5 Official Poverty (LHS) 18 2.0 16 1.5 14 RPJM High 1.0 12 Target RPJM Moderate Target 10 0.5 8 0.0 6 -0.5 4 Annual Change in Poverty -1.0 2 0 -1.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
FISCAL SECTOR: BURDENED BY INEFFICIENT SPENDING 2011 Actual Audited 2012 Preliminary Actual 2013 Budget IDR trillion IDR trillion 350 350 300 300 250 250 200 200 150 150 100 100 50 50 0 0 Personnel Material Capital Int. Energy Social Payments subsidy Source: MoF; World Bank staff calculations
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
NOTWITHSTANDING THE PRESSURES, STRONG PERFORMANCE AND PROGRESS CAN CONTINUE… 2011 2012 2013 2014 Gross domestic 6.5 6.2 6.2 6.5 product Consumer price index 5.2 4.3 5.5 5.2 Budget balance ‐ 1.2 ‐ 1.8 ‐ 1.7 ‐ 1.4 Major trading partner 3.6 3.4 3.7 4.0 growth 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
…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
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
SUCCESSFUL MANUFACTURES RELY ON IMPORTS Value-added in manufactured goods exports Indonesia China Domestic goods Domestic services Foreign goods Foreign services Other Transport eq. Electric eq. Machinery Basic metal Chemicals&mi… Wood&paper TCF Food prod Mining Agriculture Percent 0 25 50 75 100 0 25 50 75 100 Source: OECD and WTO Trade in Value-Added (TiVA) statistics
FDIHAS ROOM TO INCREASE Inbound FDI, percent of GDP Percent Percent 8 8 2002-2004 2005-2008 2010-2011 6 6 4 4 2 2 0 0 Source: CEIC; World Bank staff calculations
PUBLIC INFRASTRUCTURE NEEDS A FURTHER BOOST Percent of GDP IDR trillion 10 500 Infrastructure investment to GDP (LHS) 8 400 6 300 Real spending (2000 prices, RHS) 4 200 2 100 0 0 1995 1997 1999 2001 2003 2005 2007 2009 2011 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
TAP INTO THE POTENTIAL OF FAST URBANIZATION Percent Ln GDP per capita (PPP, 2005 prices) 5.5 6 6.5 7 7.5 8 8.5 9 9.5 Per capita GDP against 55 55 urbanization rates Indonesia China 45 45 Philippines 35 35 India Thailand 25 25 Agglomeration areas in Vietnam Indonesia 15 15 Source: Indonesia: The Rise of Metropolitan Regions. The World Bank (2012)
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
Recommend
More recommend
