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Indonesia'€™s exports at risk due to Chinese growth slowdown

The new Indonesian government is facing a challenge to boost exports and reverse slowing economic growth following another growth downturn in China, the archipelago’s largest trading partner

Satria Sambijantoro (The Jakarta Post)
Jakarta
Fri, October 24, 2014

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Indonesia'€™s exports at risk  due to Chinese growth slowdown

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he new Indonesian government is facing a challenge to boost exports and reverse slowing economic growth following another growth downturn in China, the archipelago'€™s largest trading partner.

'€œIndonesia'€™s commodity and energy exports are being affected by the slowdown in China,'€ Bank Central Asia (BCA) chief economist David Sumual said on Thursday.

Worryingly, David noted, the slowdown in China was occurring at a time when Indonesia'€™s share of exports there was increasing.

Annual gross domestic product (GDP) growth in China, the world'€™s second-largest economy, stood at 7.3 percent in the third quarter this year, its slowest rate for five years.

China '€œfaces a deep structural slowdown and broad uncertainty in the decade ahead'€, with growth probably settling at 4 percent after 2020, according to the Conference Board, a US-based research group.

  • China'€™s GDP grew 7.3% in the third quarter, its slowest rate for five years
  • RI'€™s exports to China totaled $11.3 billion during Jan. to Aug.
  • Shipments to China fell 4.6% in August compared to a month earlier

The International Monetary Fund (IMF) has estimated that every 1 percent deduction of economic growth in China could decelerate Indonesia'€™s economy by 0.5 percent, mainly because of the strong trade links between the two countries.

'€œLower economic growth in China may translate into lower demand for commodities, such as rubber, coal and palm oil, which are the goods that Indonesia exports,'€ David added.

According to the latest data from the Central Statistics Agency (BPS), Indonesia exported US$11.3 billion of goods to China from January to August this year, 11.7 percent of the archipelago'€™s total exports, the highest level by any one country.

Indonesia'€™s shipments to China fell 4.6 percent in August compared to a month earlier, offering the first signal that the slowdown in China was beginning to affect domestic exports.

Newly inaugurated President Joko '€œJokowi'€ Widodo aims to remove infrastructure bottlenecks to spur economic growth to 7 percent, a level that was last reached by the country two decades ago.

Such a growth target could only be achieved if Indonesia altered its growth model and boosted the share of exports and investments in the country'€™s GDP, which was currently dominated by household consumption, former deputy finance minister Bambang Brodjonegoro said recently.

Household consumption currently accounts for 56 percent of Indonesia'€™s GDP, while exports account for 23 percent, according to BPS data.

'€œThe 7 percent growth target [set by Jokowi] may not be achieved in the next one or two years because going forward, Indonesia looks set to be facing a challenging global and domestic economic environment,'€ Agustinus Prasetyantoko, an economist with Atma Jaya Catholic University, said on Thursday.

A slowdown in China, a major player in the global value chain, would have a significant impact on Indonesia'€™s long-term growth outlook, he noted.

'€œThere needs to be a shift in our policy framework, especially on how to reduce our reliance on exporting primary commodities,'€ he said.

Bank Indonesia (BI) has expressed its vigilance on the issue, having referred twice to China'€™s economic downswing in its latest policy statement, which was released after its board of governors'€™ meeting earlier this month.

The World Bank has also identified the growth slowdown in China as a major global risk that will require monitoring from Indonesian policy makers.

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