Both the Center of Reform on Economics (Core) and Aberdeen Asset Management Ltd expect economic growth in Indonesia to accelerate in 2016 after Southeast Asia's largest economy may post a seven-year low GDP growth figure of 4.7 percent in 2015. Both institutions believe that household and government spending will accelerate next year, while recently unveiled economic stimulus packages (involving deregulation and tax incentives) will create a more attractive investment climate, thus both foreign and domestic investment is expected to grow.
At the Core Economic Outlook Indonesia 2016 event (held on Wednesday 18 November in Hotel Js Luwansa, Jakarta) Hendri Saparini, Executive Director of CORE, said household consumption in Indonesia is assumed to grow by 5.3 percent in 2016, up from an estimated 5 percentage point growth pace this year. Meanwhile, government spending is expected to expand in the range of 6-7 percent next year. Smooth realization of government spending, particularly regarding government-led infrastructure projects, are considered one of the main keys to enhance Indonesia's economic and social development next year. According to Core, Indonesia's gross fixed capital formation is projected to grow 6 percent in 2016.
Sigit Wiryadi, General Chairman at Aberdeen Asset Management Ltd, said the Indonesian economy
will feel the positive impact of the recently unveiled stimulus packages as the country's investment climate becomes more attractive. He added that Indonesia needs to diversify its funding sources in order to strengthen growth of the economy, for example by deepening the capital markets.
Economic Stimulus Packages of the Indonesian Government:
|1st||9 September||• Boost industrial competitiveness through deregulation
• Curtail red tape
• Enhance law enforcement & business certainty
|2nd||30 September||• Interest rate tax cuts for exporters
• Speed up investment licensing for investment in industrial estates
• Relaxation import taxes on capital goods in industrial estates & aviation
|3rd||7 October||• Cut energy tariffs for labor-intensive industries|
|4th||15 October||• Fixed formula to determine increases in labor wages
• Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
|5th||22 October||• Tax incentive for asset revaluation
• Scrap double taxation on real estate investment trusts
• Deregulation in Islamic banking
|6th||5 November||• Tax incentives for investment in special economic zones|
|7th||to be announced||• Speed up transfers of government funds to the village level
• Boost infrastructure development in the villages
Meanwhile, Indonesian Coordinating Minister for Fisheries and Maritime Affairs Rizal Ramli said economic growth in Indonesia can reach 6 percent in 2016 provided that government spending continues to improve and investors come to enjoy the nation's more attractive investment climate after various deregulation and tax incentive packages were released in September and October (for example investment in the country's industrial zone has been made more attractive by providing tax incentives and by cutting bureaucracy). Meanwhile, the government's decision to introduce a new tax incentive that makes it more attractive for companies to revalue their fixed assets can give companies the tools (higher assets) for further expansion and diversification.
Minister Ramli said that the government has been facing four deficits that put pressure on the macroeconomy during the first year under the leadership of President Joko Widodo. These are the trade deficit, current account deficit, balance of payments deficit, and the budget deficit. The first two of these deficits - namely the trade deficit and current account deficit - have improved markedly over the past year. However, as this improvement is mainly caused by weakening imports (suggesting weaker economic activity in Indonesia), concerns persist.
Ramli added that he expects to see another cabinet reshuffle before the year-end in order to enhance Indonesia's improving economic trend.
Indonesia's Quarterly GDP Growth 2009–2015 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV|
Source: Statistics Indonesia (BPS)