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RI relatively secure from trade war effects: AMRO
Indonesia should be largely safe from the adverse effects of the ongoing trade tensions between the United States and China, given that the country is relatively less integrated into the global value chain, say economists from the ASEAN+3 Macroeconomic Research Office (AMRO)
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span>Indonesia should be largely safe from the adverse effects of the ongoing trade tensions between the United States and China, given that the country is relatively less integrated into the global value chain, say economists from the ASEAN+3 Macroeconomic Research Office (AMRO).
While the escalating tensions between the world’s two largest economies pose the biggest short-term downside risk to China, Japan and South Korea, AMRO chief economist Hoe Ee Khor said Indonesia was expected to continue its economic expansion at its current pace.
“We have not changed our forecast for Indonesia because Indonesia is not as affected by the trade war as other countries in the region,” Khor said in Jakarta on Tuesday, citing Indonesia’s relatively minimal presence in the global
value chain compared to other countries in the region, particularly in the electronics industry.
AMRO is a regional research center focusing on macroeconomics in ASEAN and China, Japan and South Korea (ASEAN+3).
According to AMRO’s latest estimation, Indonesia’s economy is expected to expand by 5.1 percent in 2019 and 2020 — unchanged compared with last month’s outlook when AMRO launched its flagship ASEAN+3 Regional Economic Outlook (AREO) report.
In the first quarter, Indonesia posted 5.07 percent Gross Domestic Product (GDP) growth thanks to robust household spending, according to Statistics Indonesia (BPS) data.
However, Khor said the ASEAN+3 region was expected to post lower growth as a whole at 4.9 percent in 2019 and 2020 — compared with a previous projection of 5.1 percent growth over the same period — as a result of higher tariffs imposed by both the US and China, which he argued would have spillover effects on other countries in the region.
The US administration increased tariffs on US$200 billion worth of Chinese goods on May 10, which was promptly responded to by China’s tariff hike on $60 billion worth of US imports on May 13.
“On average, because the growth rate is going to be lower not just for the US and China, the spillover is going to be much higher. The whole [ASEAN+3] region is going to lose out [but] not by very much,” said Khor.
China’s growth outlook was revised down to 6.2 percent in 2019 and 6.1 percent next year, 0.1 percent lower compared with the previous AMRO estimation over the same period.
Other countries such as South Korea and Japan are also forecast to book lower growth at 2.4 percent and 0.5 percent, respectively, in 2019 and 2020.
However, the trade war situation had created “winners and losers” in the region, Khor said, where countries like Vietnam, Malaysia, Thailand, Cambodia and Indonesia could reap benefits primarily from trade diversion from Chinese manufacturers to circumvent the tariff measures.
In a recent meeting, President Joko “Jokowi” Widodo asked business executives from several associations such as the Indonesian Chamber of Commerce and Industry (Kadin) and Indonesian Employers Association (Apindo), among others, to seek opportunities to meet demand in the US market, particularly to replace the supply of Chinese goods on which were slapped higher tariffs.
University of Indonesia (UI) economist Ari Kuncoro said Indonesia could have a competitive edge compared with its neighbors in high value-added products such as garments and furniture.
“Our [competitive advantage] in the [global] value chain is in industries that are not too technologically advanced but have high added value, like garments and furniture,” said Ari.
To entice more Chinese firms to relocate to Indonesia, Ari suggested the government adopt a direct approach to the firms and promote the facilities provided in various industrial estates in the country, such as Kendal Industrial Park in Central Java, a strategy he said that was also utilized by other countries, such as Vietnam and Thailand, in response to the trade conflict.
Institute for Development of Economics and Finance (Indef) economist Bhima Yudhistira Adhinegara added that the government should focus its efforts on developing supporting infrastructure for its industrial estates and further review the government’s fiscal incentives in order to attract more industries to relocate to the country.
