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RI's GDP growth to remain sluggish next year: Analysts

Indonesia’s GDP growth is expected to remain sluggish in 2020 as weakening exports and commodity prices, in addition to global uncertainties, continue to take their toll on the economy

Adrian Wail Akhlas and Marchio Irfan Gorbiano (The Jakarta Post)
Jakarta
Wed, December 11, 2019

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RI's GDP growth to remain sluggish next year: Analysts

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span>Indonesia’s GDP growth is expected to remain sluggish in 2020 as weakening exports and commodity prices, in addition to global uncertainties, continue to take their toll on the economy.

The country’s economic growth is expected to grow by 5 percent this year and will remain the same in 2020, according to Singapore-based lender Bank DBS Indonesia economist Masyita Crystallin.

“Next year’s flat baseline is an optimistic [stance] because of weak exports, investment and consumer spending. Growth, however, should pick up by 2021 to just 5.1 percent,” said Masyita in a press briefing in Jakarta on Dec. 4.

The country’s annual GDP growth stood at 5.02 percent in the third quarter of this year, down from 5.05 percent in the second quarter, as investment and exports plunged while household spending stagnated, Statistics Indonesia (BPS) data revealed.

“Weakening exports pose the biggest risk as there is a possibility that imports will pick up by June next year.”

Masyita said the country’s economic growth would mainly be supported by higher consumer spending and investment. “We expect that regional elections in 2020 could boost spending while investment could start to accelerate next year as political uncertainty driven by this year’s elections becomes less significant [for investors].”

The growth of investment, which accounts for about a third of the country’s GDP, plunged to 4.21 percent from 6.96 percent recorded in the same period last year, BPS data show.

“We are still waiting to see whether the government’s economic reforms can capture foreign direct investment and work effectively in stimulating the economy,” Masyita added.

The government is currently formulating an omnibus bill that will amend articles in more than 70 existing laws to remove barriers that deter investment.

It includes a plan to revise the negative investment list, streamline all business licenses under the Investment Coordinating Board (BKPM), ease taxes on corporate income, expatriates and dividends. More efforts at deregulation include revoking at least 40 ministerial regulations and relaxing building permit (IMB) and environment impact study (Amdal) requirements.

Despite the government’s attempts to boost sluggish growth through policy reform, global credit rating agency Moody’s estimates Indonesia’s GDP will grow by only 4.9 percent this year and further decline to 4.7 percent in 2020 — the slowest pace since 2016’s fourth quarter — as a result of weak commodity prices. The growth is expected to slightly recover to 4.8 percent in 2021.

“We’ve seen some decline in commodity prices and as a result, slower economic growth and that has had a knock-on effect in terms of Indonesia’s economy,” Moody’s managing director and chief credit officer Michael Taylor said at a separate event in Jakarta on the same day.

The decline in commodity prices correlated closely with the banking sector, making it one of the key risks to Indonesian banks, said Moody’s analyst Tengfu Li.

“While commodity prices have recovered somewhat, the level of loans-at-risk is still elevated if you compare it to its peak in 2016,” Li said. “We are sort of watching this space closely because if the commodity cycle turns again, it will have a material impact on the banking sector.”

Bank loans grew 6.53 percent year-on-year in October, the slowest pace since 2016, according to the Financial Services Authority (OJK).

Bank Indonesia (BI) maintained its seven-day reverse repo rate at 5 percent in November after four interest rate cuts of 100 basis points in total since July. However, the central bank also decided to lower the average primary reserve requirement — the minimum amount of bank liquidity held by BI — by 50 bps to boost liquidity in the banking system. The new policy will take effect on Jan. 2.

PT Batavia Prosperindo Asset Management president-director Lilis Setiadi projected that the trend would continue next year as she expected that the central bank would further cut its interest rates. “We expect that interest rates could be cut by 0.25 percent to 0.5 percent next year.”

Meanwhile, Jakarta-based pollster Indikator Politik Indonesia political observer Burhanuddin Muhtadi said that the government under President Joko “Jokowi” Widodo should expedite economic reform next year, arguing that Jokowi’s strong coalition, with the Gerindra Party joining the government, could help him realize the reform.

“There are many unpopular policies that would need political support […] If Jokowi wants to create a legacy then he must make sure [economic] reform starts as soon as possible before the end of 2022 as political parties will start the preparations for the 2024 elections.”

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