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Jakarta Post

2015 and 2016: Optimism amid turmoil

  • Anton Hermansyah & Arif Gunawan S.

    The Jakarta Post

Jakarta   /   Fri, February 5, 2016   /  06:19 pm
2015 and 2016: Optimism amid turmoil Confidence: Central Statistics Agency (BPS) head Suryamin talks to journalists during a press conference on gross domestic product (GDP) growth in 2015. Most respondents to a recent BPS survey on business confidence were optimistic that growth would be higher in the first quarter of 2016 than in the final quarter of 2015. (Antara/Yudhi Mahatma) (BPS) head Suryamin talks to journalists during a press conference on gross domestic product (GDP) growth in 2015. Most respondents to a recent BPS survey on business confidence were optimistic that growth would be higher in the first quarter of 2016 than in the final quarter of 2015. (Antara/Yudhi Mahatma)

Confidence: Central Statistics Agency (BPS) head Suryamin talks to journalists during a press conference on gross domestic product (GDP) growth in 2015. Most respondents to a recent BPS survey on business confidence were optimistic that growth would be higher in the first quarter of 2016 than in the final quarter of 2015. (Antara/Yudhi Mahatma)

The country last year suffered its lowest annual growth in six years at 4.79 percent. But in a year when the US repeated similar growth to 2014 at 2.4 percent and Chinese growth slowed to 6.7 percent from 10.6 percent in 2010, one can see a positive trend in Indonesia'€™s quarterly growth.

In the last quarter of 2015, the country registered year on year (yoy) growth of 5.04 percent, higher than the third quarter'€™s growth of 4.74 percent, as well as the second quarter and the first quarter growths of 4.66 percent and 4.73 percent, respectively.

'€œIn the first to third quarters, the physical effects of infrastructure development had not taken effect,'€ Central Statistics Agency (BPS) head Suryamin said recently, adding that local growth from infrastructure spending played a significant role in boosting the economy amid global uncertainty.

According to KBD Daewoo Securities'€™ research, China'€™s slowing economy, which in turned slowed Indonesia'€™s GDP growth, contributed to slowing exports, as China is one of Indonesia'€™s main trading partners.

'€œBehind the gradual weakening of the broader economy, we are witnessing similar trends in export growth ['€¦] Weakening commodity prices are the main reason behind the widening of Indonesia'€™s and China'€™s trade balance deficit,'€ said KBD Daewo Securities analyst Dang Maulida in a note to investors.

In essence, she continued, investors could no longer expect China to demonstrate double-digit economic expansion. This implies that investors should lower price recovery expectations on commodities, especially coal and crude palm oil (CPO).

This explains why all business sectors continued to grow positively, except the mining sector. Major regions outside Java recorded higher growth, except for commodities-reliant regions such as Sumatra and Kalimantan, which grew only 3.54 percent yoy and 1.31 percent yoy, respectively.

In line with President Joko '€œJokowi'€ Widodo'€™s mission to redistribute growth by boosting development in eastern Indonesia, most of the country'€™s eastern regions grew at a relatively fast rate. While Java grew 5.45 percent, Bali-Nusa Tenggara scored 10.3 percent growth, the highest in the nation, and Maluku-Papua grew 6.62 percent.

'€œThe development direction is right. Regions outside Java have begun to see higher growth,'€ said Suryamin.

However, in terms of equality in development, there is still much to be done, as Java continues to dominate GDP with a 58.3 percent share, followed by commodities islands Sumatra (22.21 percent) and Kalimantan (8.15 percent). Bali-Nusa Tenggara and Maluku-Papua have the lowest shares with 3.06 and 2.37 percent, respectively.

Maintaining optimism

Through the years, government consumption has been the main driver of the economy, with 5.4 percent. Fixed capital expenditure follows with 5.1 percent and household consumption with 5 percent.

Suryamin is optimistic the economic policy packages that will begin to take effect in the second quarter of 2016 will help the economy this year. SMEs are likely to grow amid decreasing interest rates and simplified licensing processes.

Meanwhile, on the investment and production side, information technology and communication is the strongest sector, with a robust 10.1 percent growth. Financial and insurance recorded the second highest growth with 8.5 percent, followed by miscellaneous industries at 8.1 percent.

'€œThe oil and gas industry remained negative, shrinking 5.08 percent. We cannot hope to see an improvement in 2016, because this sector is export-orientated and therefore dependent on the global economy,'€ Suryamin told thejakartapost.com.

Regarding the recent and forthcoming layoffs, such as those in Chevron Pacific Indonesia and Panasonic Lighting, he said he expected SME growth to be great enough to offset the impact on the economy.

'€œThe layoffs are just a small part of the economy, conducted by certain medium to large enterprises. On the other side, the government is focusing on helping micro and small companies,'€ he said.

The BPS surveyed over 2,500 businessmen regarding their business tendencies, with the results showing that they were more optimistic in the first quarter of 2016 than the fourth quarter of 2015.

'€œIn the fourth quarter of 2015 there were three positive aspects: increasing operating income, better production capacity and utilization rate and rising working hours,'€ he said.

Meanwhile, in the first quarter of 2016, he continued, agriculture attracted the most positive sentiment thanks to positive crops and the upcoming post-El Nino harvest season. Social security and health followed in the wake of improvements to the social security program.

Capital market investors similarly showed optimism in Friday'€™s trade, the Jakarta Composite Index (JCI) rising 2.8 percent and hitting a new record high at 4,798.9. The market capitalization soared to Rp 5.1 quadrillion (US$ 375.5 billion) after foreign investors recorded a net buy of Rp 2.3 trillion.

"Market capitalization was squeezed to Rp 4.3 quadrillion when the bourse index dropped last year. However, the increasing stock prices  lately have brought the capitalization back to Rp 5 quadrillion, which means investors'€™ assets have risen by almost Rp 1 quadrillion," he said as quoted by kontan.co.id.

Whether this optimism is justified remains to be seen. The task remains a tricky one for the Jokowi administration '€“ how to boost the economy if the 10 policy packages issued so far aren'€™t enough. (ags)(+)

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