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Transcript of CONSENSUS FORECAST - FocusEconomics ... April 2015 FocusEconomics Consensus Forecast panelists see...

  • CONSENSUS FORECAST

    INDONESIA 2 CALENDAR 17 NOTES 19

    Contributors ARNE POHLMAN Chief Economist ARMANDO CICCARELLI Head of Research RICARDO ACEVES Senior Economist RICARD TORNÉ Senior Economist

    OLGA COSCODAN Economist CARL KELLY Economist TERESA KERSTING Economist DIRINA MANÇELLARI Economist

    ANGELA BOUZANIS Economist CECILIA SIMKIEVICH Economist MIRIAM DOWD Editor

    PUBLICATION DATE 24 March 2015 FORECASTS COLLECTED 18 March - 23 March 2015

    INFORMATION AVAILABLE Up to and including 23 March 2015 NEXT EDITION 28 April 2015

    Indonesia • April 2015

  • FOCUSECONOMICS Indonesia

    FocusEconomics Consensus Forecast | 2

    April 2015

    Indonesia

    REAL SECTOR | Manufacturing PMI falls to record low in February The manufacturing Purchasing Managers’ Index (PMI) ticked down from 48.5 in January to 47.5 in February, according to a release provided by HSBC. February’s result marked the lowest level on record. Moreover, the index is below the 50-threshold, which indicates contraction in the manufacturing sector.

    February’s figure reflected a fifth straight contraction in both output and new orders, with both falling at the fastest rate in nearly four years. Weak demand domestically, due to high prices and from abroad, were a drag on production and orders. Latest data show that input costs rose during the latest period, with a strong U.S. dollar pushing up the price of imported inputs. Manufacturers cut their purchasing activity the most in 18 months. Moreover, the decrease in production and demand led to a seventh consecutive fall in employment levels.

    According to HSBC, “as new orders fell at a survey-record pace, reflective in part of rising prices negatively weighting on demand, the near-term outlook for the sector remains a little underwhelming. Accordingly, manufacturers responded by cutting their staffing levels further during February.”

     Expectations are high that government-led infrastructure spending will boost the economy this year following disappointing GDP growth in 2014. However, there are also doubts regarding whether the savings generated by fuel subsidy cuts will be enough to fund the near-doubling of capital expenditures as laid out in the 2015 budget, particularly in light of the expected drop in oil-related revenues. Moreover, it remains to be seen at what rate government funds will be disbursed and how many of the projects in the pipeline will materialize. The success of the government’s expansionary fiscal plans may well determine the fate of the economy this year, given that other sectors are stuck in low gear. No strong recovery of export growth is expected in the near term, with subdued global demand offsetting the effect of a depreciating currency. Exports of commodities such as coal and palm oil, but also manufactured goods, are stuck in a rut. In fact, the manufacturing PMI hit a record low in February.

     President Widodo’s growth-oriented policies are expected to boost the economy. FocusEconomics panelists see the economy expanding 5.4% in 2015, which is unchanged from last month’s forecast. For 2016, the panel sees GDP growth picking up to 5.7%.

     Inflation receded from 7.0% in January to 6.3% in February. The rupiah traded at a multi-year low of 13,242 per USD on 16 March. The Central Bank decided to hold the BI rate at 7.50% at its 18 March monetary policy meeting. FocusEconomics panelists expect inflation to average 6.1% in 2015 and to drop to an average of 4.8% in 2016.

    Outlook stable

    LONG-TERM TRENDS | 3-year averages

    Carl Kelly Economist

    2011-13 2014-16 2017-19 Population (million): 243 255 266 GDP (USD bn): 909 935 1,290 GDP per capita (USD): 3,716 3,662 4,840 GDP growth (%): 5.9 5.4 5.9 Fiscal Balance (% of GDP): -1.7 -2.1 -1.5 Public Debt (% of GDP): 21.6 25.0 25.0 Inflation (%): 5.2 5.8 4.6 Current Account (% of GDP): -1.9 -2.7 -1.9 External Debt (% of GDP): 27.2 33.6 27.9

    Indonesia

    Purchasing Managers’ Index

    Note: HSBC Manufacturing Purchasing Managers’ Index (PMI). A reading above 50 indicates an expansion in the manufacturing sector while readings below 50 indicate a contraction. Source: HSBC and Markit.

    46

    48

    50

    52

    54

    Feb-13 Aug-13 Feb-14 Aug-14 Feb-15

  • FOCUSECONOMICS Indonesia

    FocusEconomics Consensus Forecast | 3

    April 2015

    FocusEconomics Consensus Forecast panelists see manufacturing rising 5.1% in 2015, which is down 0.1 percentage points from the previous month’s estimate. For 2016, the panel expects manufacturing to increase 5.6%.

    The Central Bank expects the economy to grow between 5.4% and 5.8% in 2015. FocusEconomics Consensus Forecast panelists expect the economy to expand 5.4% in 2015, which is unchanged from last month’s forecast. For 2016, the panel sees economic growth picking up to 5.7%.

    REAL SECTOR | Retail sales accelerate in January Retail sales in January expanded 10.4% over the same month of last year, according to Bank Indonesia’s Retail Sales Survey (RSS). The expansion was well above the 3.3% rise observed in December. According to the Bank, January’s expansion was driven by strong growth of sales of information and communication equipment as well as of food, beverages and tobacco.

    Annual average growth in retail sales decreased from 14.4% in December to 13.4% in January. According to the survey, retailers expect sales to pick up in February to an 11.4% annual growth rate.

    FocusEconomics Consensus Forecast participants see private consumption rising 5.1% in 2015, which is unchanged from last month’s forecast. For 2016, panelists see growth in private consumption coming in at 5.4%.

    MONETARY SECTOR | Inflation recedes further in February amid low global oil prices Consumer prices decreased 0.36% in February over the previous month, which followed the 0.24% drop tallied in January. February’s reading, the lowest since June 2007, was driven by a steep decline in prices for foodstuffs as well as transportation and communication services. Low global oil prices continue to offset the increase in prices caused by the government’s decision in November of last year to lower fuel subsidies.

    Annual inflation receded from 7.0% in January to 6.3% in February. The reading was below market expectations of 6.7%. Annual average inflation inched down from 6.3% in January to 6.2% in February. Meanwhile, the core inflation index, which excludes volatile items such as food and administered prices, increased 0.34% over the previous month (January: +0.61% month- on-month). Annual core inflation held steady at January’s 5.0%.

    The Central Bank’s inflation target for 2015 is 3.0%–5.0%. FocusEconomics Consensus Forecast panelists expect that inflation will average 6.1% in 2015, which is down 0.4 percentage points from last month’s forecast. For 2016, panelists see inflation averaging 4.8%.

    MONETARY SECTOR | Bank Indonesia holds rates to calm capital outflows and currency volatility At its 18 March monetary policy meeting, the Central Bank decided to hold the BI policy rate at 7.50%. The move, which met market expectations, follows the surprise 25 basis point cut implemented at the previous meeting in February in an attempt to stoke economic growth. While boosting the economy remains a priority, the decision to hold the rate at this time comes primarily amid concern over capital outflows, exchange rate volatility, and a persistent current account deficit. The Bank also maintained the deposit facility rate at 5.50% and lending facility rate at 8.00%.

    Retail Sales | variation in %

    Note: Year-on-year and annual average variation in %. Source: Bank Indonesia (BI) and FocusEconomics calculations.

    0

    10

    20

    30

    Jan-13 Jul-13 Jan-14 Jul-14 Jan-15

    Year-on-year

    Annual average

    %

    Inflation | Consumer Price Index

    Note: Annual and monthly variation of consumer price index in %. Source: Statistics Indonesia (BPS) and FocusEconomics calculations.

    2.0

    4.0

    6.0

    8.0

    10.0

    -2.0

    0.0

    2.0

    4.0

    6.0

    Feb-13 Aug-13 Feb-14 Aug-14 Feb-15

    Month-on-month (left scale)

    Year-on-year (right scale)

    %%

  • FOCUSECONOMICS Indonesia

    FocusEconomics Consensus Forecast | 4

    April 2015

    Bank Indonesia emphasized that it expects the economy to gather momentum during the course of this year. The Bank explained that increases in private consumption and government spending will drive an improvement already in Q1. Meanwhile, the external sector continues to suffer amid weak global demand and low commodity prices. Growth this year will accelerate on the back of increased investment and government infrastructure projects.

    The Bank pointed out that consumer prices dropped 0.36% in February over the previous month. Moreover, annual inflation receded from 7.0% in January to 6.3% in February. Core inflationary pressures also subsided. Declining inflationary pressures are being driven by moderate domestic demand and weak global commodity prices. The Bank maintains its inflation target corridor of 4.0±1.0% for 2015 and 2016.

    Regarding the external sector, the trade balance recorded a third straight surplus in February, due primarily to a non-oil and gas surplus. A surplus in the oil and gas sector in February also helped reduce some pressure on the country’s stubbornly large current account deficit. The Bank stated that its rate hold this month was aimed at g