Update COVID-19 in Indonesia: 1,298,608 confirmed infections, 35,014 deaths (23 February 2021)
23 February 2021 (closed)
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UBS Investment Bank is less positive about Indonesia's economic growth in 2017 compared to most other institutions. The global financial services company, with its headquarters in Switzerland, expects to see the Indonesian economy growing by 4.8 percent year-on-year (y/y) in 2017. Edward Teather, Senior Economist for ASEAN and India at UBS, says the year 2017 is a year of adjustment and balancing for Southeast Asia's largest economy, while the role of fiscal support toward GDP growth is also seen declining this year. He added that 2018 will be the year in which Indonesia should see strongly accelerating economic growth.
Teather sees a persistently high degree of global uncertainty in 2017 due to looming further interest rate hikes in the USA. In combination with Indonesia's wide current account deficit, Indonesia's rupiah will be under pressure later this year. The current account deficit is expected to rise to 2.7 percent of GDP in 2017 due to rising imports. Meanwhile, the Indonesian government is eager to keep its budget deficit below the legal cap of 3 percent of gross domestic product (GDP). In the 2017 State Budget the government set its targeted budget deficit at 2.41 percent of GDP, implying limited fiscal room to boost the Indonesian economy.
Last year, on the contrary, there was more fiscal stimulus available from the central government, while the central bank (Bank Indonesia) was able to cut its interest rate environment drastically. In 2017, however, Bank Indonesia may actually need to hike its benchmark interest rate by 0.50 percent due to developments in the USA, Teather said. Therefore, UBS sees limited fiscal and monetary room for Indonesian authorities to boost economic growth.
Another problem is that, despite low interest rates, demand for credit in Indonesia is rather low (for Indonesian standards). In full-year 2016 credit growth only grew by 7.9 percent (y/y). UBS expects demand for credit to remain stagnant in the foreseeable future although higher oil prices (which encourage other commodity prices to rise accordingly) can somewhat boost credit growth in Indonesia in 2017.
However, foreign direct investment (FDI) in Indonesia is expected to be solid this year as the giant population of Indonesia is an attractive consumer force, while Indonesia rose in the ranking of the World Bank's Ease of Doing Business Index (jumping from 106 to 91). UBS believes rising FDI in Indonesia can somewhat offset pressure in financial markets that are brought about by looming monetary tightening in the USA.
Contrary to UBS' 4.8 percent (y/y) growth forecast for Indonesia in 2017, the World Bank put its forecast at 5.3 percent (y/y), while Fitch Ratings even put it at 5.4 percent (y/y). The Indonesian government targets a 5.1 percent (y/y) growth figure in 2017. Indonesia Investments expects a 5.2 percent (y/y) growth in 2017.
Indonesia's Quarterly GDP Growth 2009-2016 (annual % change):
|Year|| Quarter I
||Quarter II||Quarter III||Quarter IV||Full-Year|
Source: Statistics Indonesia (BPS)