Sri Mulyani Optimistic about Indonesia's 2018 GDP Growth
Indonesian Finance Minister Sri Mulyani is optimistic that Indonesia's economic growth in 2018 can exceed the government target of 5.4 percent year-on-year (y/y) as set in the 2018 State Budget, which was approved by Indonesian parliament last week. Her optimism is based on an expected pickup in investment and exports next year.
However, there remain plenty of uncertainties - both internal and external. Externally, several big economies may push for domestic-oriented policies, such as US President Donald Trump's plan to cut corporate taxes. Meanwhile, the US Federal Reserve is expected to remain committed to its plans to tighten its monetary policy (hike its key Fed Funds Rate and unwind its balance sheet).
Internally, Indonesia will enter the so-called "political year" as parties and people are preparing for Indonesia's 2019 presidential election. This could become another close race between Joko Widodo and Prabowo Subianto and therefore brings some uncertainties. Investors would like to see another Widodo victory.
These external and internal issues could add pressures on the rupiah exchange rate. Since reaching a 10-month high in September, the rupiah has depreciated more than 3 percent against the US dollar amid widespread US dollar strength.
Indonesian Rupiah versus US Dollar (JISDOR):
| Source: Bank IndonesiaOn a positive note, Bank Indonesia's aggressive monetary easing program over the past 18 months (cutting the benchmark rate to 4.25 percent) is expected to be felt next year as there tends to be a long lag between a lower benchmark rate and its impact on credit growth. Currently, credit growth in Indonesia remains bleak, rising only 7.86 percent (y/y) in September (while it used to be double-digit growth).
