Gov't & World Bank Cut Indonesia's 2016 GDP Growth Forecast to 5.1%
In line with expectations, the government of Indonesia revised down its economic growth target in 2016 from 5.3 percent (y/y) to 5.1 percent (y/y) amid subdued private consumption, slower-than-expected private investment, and low commodity prices. Meanwhile, the World Bank also cut its forecast for Indonesia's economic growth in 2016 to 5.1 percent (y/y), down from its earlier prediction of 5.3 percent (y/y). The World Bank also slashed its outlook for global growth from 2.9 percent (y/y) to 2.4 percent (y/y) this year.
In the original 2016 State Budget the Indonesian government targeted a 5.3 percent (y/y) gross domestic product (GDP) growth pace. However, most analysts already regarded this target too ambitious given the sluggish global economy. Moreover, Indonesia's domestic economy was also not "all that", reflected by the disappointing GDP growth result of 4.92 percent (y/y) in the first quarter of 2016. This result was caused by subdued household consumption (which accounts for around 58 percent of the nation's total economic growth) amid weak purchasing power. Household consumption in Indonesia may not grow 5 percent (y/y) in full-year 2016 and therefore drags down overall growth. In Q1-2016, private consumption expanded by a modest 4.94 percent (y/y).
Indonesian Finance Minister Bambang Brodjonegoro said the effects of the 12 economic policy packages (that were released between September 2015 and May 2016) have not been felt yet and therefore private investment growth has been weaker-than-expected. These 12 packages include tax incentives for investment, deregulation, as well as the opening up of several sectors to foreign investment. Private investment in Q1-2016 grew by only 4.24 percent (y/y). Meanwhile, government spending rose by only 2.93 percent (y/y) in Q1-2016 and expectation of a rather large shortfall in this year's tax revenue may curtail public spending further.
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
| Year | Quarter I |
Quarter II | Quarter III | Quarter IV | Full-Year |
| 2016 | 4.92 | ||||
| 2015 | 4.73 | 4.67 | 4.74 | 5.04 | 4.8 |
| 2014 | 5.14 | 5.03 | 4.92 | 5.01 | 5.0 |
| 2013 | 6.03 | 5.81 | 5.62 | 5.72 | 5.6 |
| 2012 | 6.29 | 6.36 | 6.17 | 6.11 | 6.0 |
| 2011 | 6.45 | 6.52 | 6.49 | 6.50 | 6.4 |
| 2010 | 5.99 | 6.29 | 5.81 | 6.81 | 6.2 |
| 2009 | 4.60 | 4.37 | 4.31 | 4.58 | 4.6 |
Source: Statistics Indonesia (BPS)
Although several commodities have followed the upward trend of the crude oil price in the first half of 2016, overall commodity prices remain subdued, particularly due to weak demand from China, the world's second-largest economy. This implies that Indonesia's export performance in 2016 is expected to remain weak as well.
The Indonesian government and House of Representatives (DPR) are currently discussing the Revised 2016 State Budget.
Indonesian Macroeconomic Assumptions in the 2016 State Budget:
| Original Budget 2016 |
Proposed Revisions 2016 State Budget |
|
| GDP Growth annual percent change |
5.3 | 5.1 |
| Inflation annual percent change |
4.7 | 4.0 |
| Exchange Rate IDR/USD |
13,900 | 13,500 |
| Government Revenue in IDR trillion |
1,822.5 | 1,734.5 |
| Tax Revenue in IDR trillion |
1,546.7 | 1,527.1 |
| Income Tax Oil & Gas in IDR trillion |
41.4 | 24.3 |
| Non-Tax Revenue Oil & Gas in IDR trillion |
273.8 | 205.4 |
| Treasury Bills Interest Rate 3-month, percent |
5.5 | 5.5 |
| Crude Oil USD $ per barrel |
50 | 35 |
| Oil Lifting in barrels per day |
830,000 | 810,000 |
| Gas Lifting barrels of oil equivalent/day |
1,155,000 | 1,115,000 |
World Bank Cut its Forecast for Global Economic Growth in 2016
Meanwhile, the World Bank sees several risks threatening the global economic recovery as troubles rise in emerging markets, while the world's advanced markets entered a prolonged low growth trend. The Washington-based institution cut its forecast for global economic growth in 2016 from 2.9 percent (y/y) to 2.4 percent (y/y), mainly due to persistently low commodity prices, while weakening currencies in emerging markets (affected by looming further monetary tightening in the USA) more-or-less force central banks to raise interest rates. This implies lower credit growth (investment) and consumption in these countries. The World Bank also cut its forecast for growth in 2017 to 2.8 percent (y/y) from 3.1 percent (y/y) previously.
One of those commodity-exporting nations that is vulnerable to the aforementioned global developments is Indonesia. The World Bank cut the nation's forecast for economic growth in 2016 from 5.3 percent (y/y) to 5.1 percent (y/y).
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