In its October East Asia Pacific Economic Update, the World Bank states that developing countries in the East Asia Pacific will experience slightly slower economic growth in 2014. However, the pace of growth in the region, excluding China, will improve next year, particularly due to a gradual recovery in high-income economies which then boosts demand for exports from the East Asia Pacific region. The report also claims that the developing East Asia Pacific region remains the fastest-growing region in the world.

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The economy of Indonesia, which has been slowing since 2011, will have difficulty to rebound in 2015 as the central bank’s key interest rate (BI rate) is expected to be raised again to avert capital outflows brought on by higher interest rates in the US and to combat accelerated inflation after domestic subsidized fuel prices have been raised by the new government led by president-elect Joko Widodo (Jokowi). After a GDP growth pace of 6.5 percent (y/y) in 2011, economic growth in Southeast Asia’s largest economy fell to 5.8 percent (y/y) in 2013.

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A new Asian Development Bank (ADB) report says that the Indonesian economy is expected to slow on weak export performance in 2014 before picking up in 2015 as external demand improves and the new government’s reform agenda takes hold. In an update of its Asian Development Outlook 2014, the ADB trimmed its forecast for 2014 growth in Indonesian gross domestic product (GDP) to 5.3 percent from 5.7 percent expected in April. The ADB expects a growth pace of 5.8 percent in 2015, down from 6.0 percent in April.

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Newly elected presidential pair Joko “Jokowi” Widodo and running mate Jusuf Kalla, the pair that will guide Indonesia for the next five years starting from October 2014, propose to raise the target for economic growth in Southeast Asia’s largest economy from 5.6 percent to 5.8 percent in 2015. Furthermore, the pair would like to set a stronger average rupiah rate at IDR 11,600 per US dollar over 2015 (from IDR 11,900 as set in the Revised 2015 State Budget). Several reasons are behind these ambitious targets.

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The central bank of Indonesia (Bank Indonesia) indicated that it will only loosen its monetary policy provided that the country’s current account deficit narrows to a level of 2.5 percent of gross domestic product (GDP), which is considered sustainable, and inflation is kept within the range of 3.5 to 5.5 percent (year-on-year) in line with the central bank’s target range. The current account deficit is one of the main problems being faced by Southeast Asia’s largest economy today and causes concern among foreign and domestic investors.

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Growth of Indonesia’s non-oil and gas manufacturing industry in the first half of 2014 reached 5.49 percent (year-on-year) and thus outpaced the country’s general economic growth of 5.17 percent (yoy) over the same period. Indonesia’s manufacturing industry growth was particularly supported by growth in a number of sectors: Food, Drinks and Tobacco (+9.62 percent), Wood and Other Forest Products (+6.35 percent), Transportation Equipment Industry and Machinery (+4.52 percent), and Other Industrial Products (+15.77 percent).

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Indonesia’s gross domestic product (GDP) growth in the second quarter of 2014 slowed to 5.12 percent (year-on-year, yoy), thus decelerating compared to the nation’s GDP growth in the previous quarter (5.22 percent yoy). The Q2-2014 GDP growth result was lower than the figure that was projected by the central bank of Indonesia (Bank Indonesia). The institution previously stated that it expected Q2-014 economic growth to reach 5.3 percent (yoy). Below are some comment of Bank Indonesia on economic growth in the second quarter.

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In response to the recent World Bank report that projects economic growth of Indonesia at 5.2 percent (year-on-year, yoy) in 2014, the Indonesian government is still optimistic that gross domestic product (GDP) growth of Southeast Asia’s largest economy can reach 5.5 percent this year. Indonesian Finance minister Chatib Basri said that household consumption, which traditionally accounts for about 55 percent of the country’s total economic growth, is expected to remain strong in 2014 and thus support GDP growth.

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The World Bank revised down its forecast for economic growth in Indonesia for the year 2014. In the July 2014 edition of the Indonesia Economic Quarterly, the institution projects economic growth in Southeast Asia’s largest economy at 5.2 percent, slightly down from its previous forecast of 5.3 percent. The downgrade is the result of a weaker outlook for commodity prices and tighter credit conditions. Moreover, the growing fiscal deficit contributes to the challenges that will be faced by the new government (which will be inaugurated in October 2014).

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Finance Minister of Indonesia, Chatib Basri, expects the Indonesian economy to grow 5.3 percent (year-on-year, yoy) in the second quarter of 2014 because of improved household consumption supported by the legislative and presidential elections in 2014. Meanwhile, Indonesian exports are also expected to have improved slightly from its performance in the first quarter of the year due to improved economic conditions in Europe. However, demand from China and Japan remained sluggish. In Q1-2014, GDP growth slowed to 5.21 percent (yoy).

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On Wednesday (05/02), Statistics Indonesia (BPS) reported that the economy of Indonesia expanded 5.78 percent in 2013. This result implies that in 2013 Indonesia experienced the slowest pace of GDP growth since its 4.63 percentage growth in 2009. However, this slowing growth was basically self-inflicted as both the Indonesian government and central bank (Bank Indonesia) used various monetary and fiscal policies to curb economic expansion in order to tackle several financial issues.

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This year, legislative and presidential elections will be held in Indonesia. Obviously, there is a strong relationship between the politics and economics of a country. Businessmen from various sectors of Indonesia's economy have already been voicing their views. As the umbrella organization of the Indonesian business chambers and associations, Kadin Indonesia recently shared its views about the elections as well. The institute believes that the 2014 elections will run smoothly because Indonesia's democracy has matured.

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On Wednesday 5 February 2014, Statistics Indonesia (BPS, a non-departmental government institute) is expected to release Indonesia's official GDP growth figure for the year 2013. It is estimated that the outcome will be the lowest GDP growth figure since 2009 when Southeast Asia's largest economy grew 4.6 percent after feeling the impact of the global financial crisis. In 2013, again, Indonesia felt the negative influence of external troubles. And in combination with domestic factors, Indonesia's economic growth is expected to be around 5.7 percent in 2013.

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Total government debt of Indonesia rose IDR 781 trillion (USD $64.5 billion) between 2009 and 2013 to IDR 2,371.39 trillion (USD $196 billion). This growing outstanding government debt is mainly caused by government loans to finance its State Budgets (APBN) as well as recent sharp rupiah depreciation (as part of this debt is denominated in foreign currencies). In the same period, Indonesia's per capita debt rose from IDR 6.8 million (USD $561) to IDR 8.6 million (USD $710), a 26.4 percent growth.

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According to the World Bank, a sharp dismantling of capital injections by the central banks can lead to a 80 percent reduction of capital inflows into the emerging economies, including Indonesia. This can cause serious damage or even a crisis situation in an emerging market because capital flows to these countries are more triggered by global factors than domestic ones. The winding down of the Federal Reserve's bond-buying program (quantitative easing) has been gradual for now but if interest rates rise quickly it can hurt emerging economies.

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Indonesia’s external debt growth continued to slow in October 2013. Debt grew 5.8 percent (yoy) to USD $262.4 billion compared to 8.6 percent (yoy) growth in the previous month. Slowing growth in external debt occurred both in the public and private sector. Public sector external debt position at the end of October 2013 grew 0.5 percent (yoy) to USD $125.8 billion compared to 2.1 percent (yoy) in September. Meanwhile, private sector external debt grew steadily at 11.1 percent (yoy) to USD $136.6 billion as compared to the previous month.

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Indonesia will most likely not meet its original GDP growth target of 6.3 percent (stipulated in the 2013 State Budget). Yesterday (06/11), it was announced by Statistics Indonesia that Indonesia’s GDP growth figure in the third quarter of 2013 was recorded at 5.62 percent (year-on-year, yoy), the weakest quarterly growth figure since 2009 when the global financial crisis impacted on Southeast Asia’s largest economy. In 2013, Indonesia feels the global impact again, in combination with domestic factors.

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