At the ANZ Economic Outlook 2015, Kuntjoro-Jakti said that the bullish US dollar (ahead of a looming US interest rate hike in the second or third quarter of 2015 and the scrapping of the US quantitative easing program at the end of last year) in combination with slowing economic expansion of China (which slowed to a 24-year low at 7.4 percent in 2014), Indonesia should not prepare for a too sharp improvement from the estimated 5.1 percentage point GDP growth in 2014. An economic slowdown in China is immediately felt worldwide (particularly by commodity exporters) as weakened demand from China pushes down commodity prices. The average commodity price index of Indonesia is expected to decline four percent this year as economic growth in China remains troublesome. The International Monetary Fund (IMF) expects the economy of China to slow to 6.3 percent (y/y) this year as the country’s weak property market and high funding costs remain key challenges. Along falling global oil prices (brought about by the US ‘shale gas revolution’ and the OPEC’s decision to maintain oil production rates in combination with global sluggish economic growth) commodity prices tend to fall accordingly. These commodities include coal, LNG, crude palm oil and rubber, all of which are important assets of the Indonesian economy. As such, reduced export performance will curb the nation’s economic growth. Although there is indeed an improvement visible in Indonesia’s non-oil & gas exports, the lack of well-developed manufacturing export constitutes a disadvantage.

However, Kuntjoro-Jakti also believes that the current low oil prices environment forms an opportunity to implement structural changes in the Indonesian economy. The Joko Widodo-led government has already scrapped low-octane gasoline subsidies at the start of the year, while introducing a fixed IDR 1,000 per liter subsidy for diesel consumption. These fuel subsidy cuts save the country up to IDR 230 trillion (USD $18.4 billion) in the Revised 2015 State Budget, and although it is a small figure (it is estimated that Indonesia requires a total of IDR 5,519.4 trillion/USD $442 billion worth of investment to support its infrastructure development in the near-future) these saved funds can be a good starting point to realize several key projects such as railways and harbours, particularly outside the island of Java.

Indonesia's Quarterly GDP Growth 2009–2014 (annual % change):

 Year    Quarter I
   Quarter II    Quarter III    Quarter IV
 2014        5.22        5.12         5.01  
 2013        6.03        5.89         5.62         5.78
 2012        6.29        6.36         6.16         6.11
 2011        6.45        6.52         6.49         6.50
 2010        5.99        6.29         5.81         6.81
 2009        4.60         4.37         4.31         4.58

Source: Statistics Indonesia (BPS)

Gross Domestic Product of Indonesia 2006-2013:

    2006   2007   2008   2009   2010   2011   2012   2013
(in billion USD)
 285.9  364.6  432.1  510.2  539.4  706.6  846.8  878.0
(annual percent change)
   5.5    6.3    6.1    4.6    6.1    6.5    6.2    5.8
GDP per Capita
(in USD)
 1,643  1,923  2,244  2,345  2,984  3,467  3,546  3,468

Sources: World Bank, International Monetary Fund (IMF) and Statistics Indonesia (BPS)

Current Account Balance of Indonesia in 2015

Meanwhile, Indonesian Finance Minister Bambang Brodjonegoro stated that the country’s current account deficit will ease to the range of 2.5 - 3.0 percent of GDP in 2015 due to expected improvement of the country’s export performance as it aims to turn from a mainly (raw) commodity exporter into a manufacturing exporter. Brodjonegoro estimates that Indonesia’s exports will grow 2.1 percent (y/y), whereas imports will grow 1.5 percent (y/y) this year. Besides from focusing on the structural change to become a manufacturing exporter, the country also intends to add new markets for its export products. However, Brodjonegoro provided no further details about how the structural change regarding the country’s exports will be realized.

Based on the latest data from Indonesia’s central bank (Bank Indonesia), the country posted a USD $425.7 million trade deficit in November 2014 and a (cumulative) trade deficit of USD $2.07 billion in the January-November 2014 period. Although a trade surplus is expected in December 2014, last year’s current account deficit will not improve markedly from the 3.3 percent of GDP in 2013. However, Bank Indonesia Governor Agus Martowardojo said that he is optimistic that the current account deficit can be reduced to 2.5 percent in 2015 amid low oil prices, the structural changes that are implemented in the domestic economy, and the depreciating rupiah exchange rate (which makes exports more competitive, while imports become more expensive). Generally, a current account deficit below three percent of GPD is considered sustainable. As the deficit signals that the economy is dependent on foreign funding, the country is highly vulnerable to capital outflows in times of global shocks. Therefore, the country places great focus on reducing this deficit ahead of higher US interest rates in the USA.

Current Account Balance Indonesia (% of GDP):