The Jakarta Post
The World Bank has warned that a continuing economic slowdown in emerging markets will cause substantial spillovers into developing economies and eventually hold back the recovery in advanced economies.
As a result, the bank cut its forecast for global economic growth in 2016 to 2.9 percent from its initial projection of 3.3 percent, but the growth projection is still better than global growth in 2015, which was at 2.4 percent.
The economic growth projection for Indonesia was also slashed to 5.3 percent from an initial projection of 5.5 percent.
Bank Indonesia Governor Agus Martowardojo said the central bank would remain cautious over the development of the global economy, in particular the Chinese economy. Recently, China's capital market experienced tremors and even suspended trading twice in the past week.
Besides, China's move to devalue its currency in August created a risk-off period, when all funds tend to flee to safe assets, according to the BI chief. "The global economy and the situation in China needs to be continuously watched. This is not the end; just the beginning," said Agus in Jakarta on Friday.
In addition, the central bank is also watching the downward trend of crude oil prices and the possibility of another increase in the US Federal Reserve funds rate. "These are the things that we need to continuously follow," he told journalists.
Agus explained that despite the pressure, the rupiah depreciation in 2015 was in the range of 11 percent, better than the Brazilian currency, which depreciated 49 percent, Turkey's, which dropped 33 percent, and that of other countries that depreciated more than 20 percent.
"But Indonesia can maintain above 11 percent. What we need to watch is the rupiah's volatility. If we can maintain its stability, we will be able to create a good business climate and boost our economy," he said.
Agus added that the foreign exchange reserves were enough to provide resistance against external factors and maintain the sustainability of economic growth in 2016.
"We will support the government's efforts to achieve 5.2 to 5.6 percent in growth. We also welcome the World Bank's projection that the Indonesian economy will grow 5.3 percent, as it is in line with the government's target in the state budget," he said.
Indonesia's reserves recorded a US$5 billion month-to-month increase in December 2015 to $105.9 billion. The increased reserves came from the government's foreign debt withdrawal, oil and gas exports and the global bonds issued to cover foreign exchange needs.
Acceleration of budget spending, according to Agus, will have a major impact on economic growth in 2016. "We certainly expect the private sector's role could be better. On the other hand, we know the world commodity prices are still depressed and we appreciate if there are initiatives to search for new export markets and to export more value-added product," he said.
According to the World Bank's January 2016 Global Economic Prospects, a modest recovery in advanced economies continues this year and activity is stable among major commodity exporters.
According to the report, falling commodity prices, flagging trade and capital flows and episodes of financial volatility sapped economic activity and made global economic growth was less than expected in 2015, while firmer growth in 2016 will depend on the stabilization of commodity prices and China's gradual transition towards a more consumption-based growth model.
However, growth is projected to slow further in China, while Russia and Brazil are expected to remain in recession in 2016. Meanwhile, developing economies are forecast to expand 4.8 percent in 2016, less than expected earlier, but up from the 4.3 percent growth in 2015. ( bbn )