Current Account Deficit Indonesia Expected to Widen to 2.5% of GDP
The current account deficit of Indonesia could widen to 2.5 percent - or more - of the nation's gross domestic product (GDP) in the second quarter of 2018 according to Bank Indonesia's Senior Deputy Governor Mirza Adityaswara. He added that a current account deficit below 3 percent of GDP is still in the safe zone. Dividend payouts are expected to put additional pressure on the Q2-2018 current account deficit of Indonesia.
Last month, Bank Indonesia Governor Perry Warjiyo said the central bank of Indonesia expects the nation's current account deficit (CAD) to remain below 2.5 percent of GDP in full-year 2018. However, this would still be significant widening compared to the 1.7 percent of GDP deficit that was recorded in full-year 2017. Indonesia's widening CAD is partly the consequence of the nation's accelerating economic growth. Rising investment and business expansion across Indonesia as well as improving domestic demand give rise to growing imports. Therefore, Indonesia's trade balance showed a USD $1.02 billion deficit in the first half of 2018.
Moreover, amid the high degree of uncertainty in the world - primarily stemming from the US Federal Reserve's monetary tightening and ongoing concerns over a global trade war led by tensions between the USA and China - emerging markets such as Indonesia have been plagued by capital outflows. This also explains why the Indonesian rupiah, stocks and bonds have been under pressure since February 2018.
Meanwhile, Adityaswara said Bank Indonesia expects the rupiah exchange rate to average IDR 13,700 - IDR 14,000 per US dollar in full-year 2018. This implies that the central bank expects to see an appreciating rupiah in the second half of 2018 as the currency is currently trading at IDR 14,418 per US dollar (Bloomberg Dollar Index). Adityaswara said recent capital inflows into government bonds show that foreign investors are becoming comfortable with Indonesian yields. He added that a stable rupiah is on top of Bank Indonesia's priority list because a stable currency allows the real sector to thrive. Moreover, the presently weak rupiah is actually a good moment to invest in Indonesian assets because it could result in significant foreign exchange gains.
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