The macroeconomic assumptions that have been formulated in the 2014 State Budget Draft by the government of Indonesia are not considered too realistic by several analysts. Although it is understood that one should set a high standard in order to maximize efforts, analysts feel that - given the current problematic economic context in Asian emerging economies as well as global economic turmoil - the government is far too optimistic, particularly because the government will have to devote part of its attention to the elections in mid-2014.

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According to a Bank Indonesia report that was released on Monday (19/08), consumer confidence in Indonesia has weakened after the government decided to raise prices of subsidized fuels in June 2013. The country's consumer confidence index fell 8.7 points to 108¹ in July from 117 points in June. Higher fuel prices led to higher transportation costs that subsequently made many retailers increase prices of products, thus impacting on Indonesian households' purchasing power. In July, the annual inflation rate accelerated to 8.61 percent.

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Indonesian stocks took a large dive on today's trading day (19/08) at the Indonesia Stock Exchange. The IHSG (the index of all listed stocks) fell 5.58 percent to 4,313.52 points as negative market sentiments caused foreign investors to pull money out of the Indonesian market. Investors are highly concerned about a number of macroeconomic data that have been released recently. These data indicated the slowest economic growth since Q3-2010, inflation at a four-year high and a widening trade deficit.

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President of Indonesia, Susilo Bambang Yudhoyono, mentioned in his speech ahead of the Independence Day that Indonesia's per capita GDP is expected to rise to USD $5,000 by 2014. An increasing per capita GDP triggers domestic consumption among Indonesia's rapidly expanding middle class segment and thus forms a catalyst for economic activity in the country. As can be seen in the table below, Indonesia's per capita GDP grew steadily between 2006 and 2012. In 2010, it hit the important level of USD $3,000.

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Indonesia's central bank, Bank Indonesia, decided today (15/08) to keep its benchmark interest rate (BI rate) at 6.50 percent. In recent days, heavy speculation emerged about whether Bank Indonesia would raise the BI rate for the third consecutive time in three months as the country is plagued by higher inflation (8.61 percent year-on-year in July 2013) and a weakening rupiah. Reluctance to raise the interest rate again seems to indicate that the Bank gives priority to economic growth, which has slid to a three-year low at 5.81 percent in Q2-2013.

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The economy of Indonesia continues to be dominated by the island of Java, Indonesia's most populous island with around 130 million people or 60 percent of Indonesia's total population. In the second quarter of 2013, Java contributed 58.15 percent to the nation's total economic growth. Far behind Java are Sumatra (23.90 percent) and Kalimantan (8.73 percent). Within Java, the Greater Jakarta area accounts for 16.50 percent of the country's total economic growth, followed by East Java (15.21 percent) and West Java (14.05 percent).

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Although it was clear that Indonesia would see a high inflation rate in July 2013 as the impact of higher fuel prices would kick in, Indonesia's central bank (Bank Indonesia) was surprised to see the figure go up to 3.29 percent. Currently, Indonesia's annual inflation rate stands at 8.61 percent. Bank Indonesia's governor Agus Martowardojo said that this rate is far outside the central bank's target range and announced that the institution expects annual inflation to stay above 8%  throughout 2013, higher than its previous assumption of 7.8% at end-2013.

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Today (02/08), Indonesia's bureau for statistics announced that economic growth of Indonesia in the second quarter of 2013 reached 5.81 percent (YoY), which is the lowest growth rate since Q3-2010 and also lower than most analysts as well as the Indonesian government expected. The GDP figure reflects Indonesia's cooling economy. For the fourth consecutive quarter, the rate has weakened as the country has been under pressure: high inflation, a widening trade deficit and a weakening rupiah.

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According to Finance minister Chatib Basri, the Indonesian government expects the country's gross domestic product (GDP) to have grown by 6.1 percent in the first six months of 2013. This forecast falls short of the government's 6.3 percent GDP growth assumption in the state budget (APBN). Basri stated that the lower outcome is due to global factors, such as slowing economic growth in China and India. But the government's assumption is more optimistic than the forecast of the central bank, which expects growth between 5.1 and 5.9 percent.

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The Indonesia Investment Coordinating Board (BKPM) expects that investments in the second quarter of 2013 will grow by 25 percent to IDR 96.13 trillion (USD $9.6 billion) compared to Q2-2012. Although Indonesia's economic growth is under threat of slowing down to below an annual growth rate of six percent, the government agency still believes that total investments in 2013 can meet the target of IDR 390 trillion (USD $39 billion). Investments in Q1-2013 were recorded at IDR 93 trillion.

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Despite the fact that Indonesia reported the world's third-highest GDP growth in 2012 (behind China's 7.4 percent and Saudi Arabia's 7.1 percent), supported by rising consumption by a burgeoning middle class and significant increased foreign direct investment, the country's performance in terms of competitiveness is disappointing. It is cheaper to import products from countries that contain competitive businesses than to produce them in Indonesia.

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Apparently, market participants were eagerly waiting for positive news regarding stimulus packages that various central banks will apply to boost local economies. Once the news spread, investors hunted for stocks that previously weakened. Moreover, increased manufacturing data from the USA and Europe contributed to positive market sentiments. Lastly, China indicated to maintain its economic pace of 7.5 percent GDP growth this year.

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Rising Asian stock markets, particularly a strong Hang Seng (Hong Kong) that opened today after the Chinese new year celebrations, had a positive impact on the Indonesia Stock Exchange (IHSG). As had happened in previous years, the IHSG has the tendency to gain ahead of Valentine's day. Today, market participants received their special Valentine's gift: a new record-high IHSG level of 4601.95, although in the end it had to close a bit lower.

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On Tuesday's trading day, the Indonesia Stock Exchange (IHSG) ended lower as widespread profit taking coloured transactions. Other Asian stock indices, such as the Nikkei (Japan) and Hang Seng (Hong Kong), fell hard and impacted on the performance of the IHSG. The publication of Indonesia's 2012 GDP growth also brought negative sentiments as its result (6.2%) was below expectations.

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An official at Indonesia's Finance Ministry announced today that Indonesia's gross domestic product (GDP) grew by 6.23% in 2012, thus failing to meet the government's revised target of 6.3-6.5%. Factors that contributed to Indonesia's lower than expected economic growth last year were weak exports due to poor international trade and non-optimal government spending. On the positive side, all sectors of the Indonesian economy experienced growth.

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Indonesian commercial banks have shown good performance in recent years as economic growth of over six percent fuels loan demand from the people and businesses. Domestic consumption and investment are the two main drivers of the country's gross domestic product (GDP) growth. Together, these two components account for almost 90 percent of GDP. As such, lenders are in a comfortable position.

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Both Indonesia's cement production and cement consumption have risen rapidly in recent years. As the country has been showing solid economic growth for a decade - and is forecast to continue this growth -, property and infrastructure projects have grown in number accordingly, thus increasing demand for building materials such as cement. Moreover, the government is committed to enhance the country's much-needed infrastructure development.

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