INDONESIA June 2019 Summary of key economic developments Manufacturing PMI rose to a 9-month high in May Indonesia’s real sector recorded strong outcomes with the Manufacturing (index) PMI rising, the consumer confidence index increasing and the retail sales 53 index growth accelerating. Headline inflation picked up in May. Between January and April, revenues saw weaker growth while expenditure growth 52 accelerated due to social aid spending. Indonesia recorded its largest monthly trade deficit in April on the back of a significant drop in oil and gas exports. Foreign exchange reserves decreased at the end of May while other 51 Indonesian financial assets recorded strong outcomes with the Rupiah appreciating, the Jakarta Composite Index increasing and bond yields 50 decreasing across all tenors in the 30 days to June 13. 49 Further details 48 • Indonesia’s real sector recorded strong outcomes. The Nikkei Indonesia May-18 Aug-18 Nov-18 Feb-19 May-19 Manufacturing Purchasing Managers’ Index (PMI) rose from 50.4 in April to Source: Nikkei Markit 51.6 in May, the highest in 9 months, due to stronger output growth and renewed expansion in new orders. Bank Indonesia’s (BI) Consumer Headline inflation picked up in May Confidence Index saw an uptick from 128.1 in April to 128.2 in May as (percent yoy) consumers’ confidence about job availability and buying conditions increased. BI’s Retail Sales Index grew 9.0 percent yoy in May, faster than 12 6.7 percent recorded in April – driven mainly by strong sales of cultural and 10 recreation goods as well as motor vehicle parts and accessories. Administered • In May, headline inflation jumped to 3.3 percent yoy from 2.8 percent in 8 April. The May outcome was driven by a sharp increase in food prices, which 6 was in turn due to higher raw food price inflation, which soared from 2.3 Food Headline 4 percent in April to 4.1 percent in May. Administered price inflation edged up from 3.2 percent to 3.4 percent with the continued increase in transportation 2 Core fares, in the anticipation of the annual exodus over the Idul Fitri holiday. Core inflation remained stable at 3.1 percent. 0 • The goods trade balance recorded a monthly deficit of USD 2.5 billion -2 May-17 Nov-17 May-18 Nov-18 May-19 in April, leading to a cumulative deficit of USD 2.6 billion since January. The April deficit was the largest in history and it was due to a significant drop Source: BPS; World Bank staff calculations in oil and gas (especially total gas) exports. Both exports and imports growth continued to decline by 13.1 percent (from 9.4 percent) and 6.6 percent (from The trade balance recorded its largest trade deficit 7.0 percent), respectively, in April. in history • Fiscal revenue between January to April 2019 grew by 0.5 percent yoy (USD billion) Total exports (fob, LHS) and expenditure growth accelerated to 8.4 percent. The revenue growth 20 Total imports (cif, LHS) 2 was driven by excises. The increase in expenditure was mainly due to higher social spending. Trade balance (RHS) 16 1 • Growth of private deposits accelerated while loan growth was slightly slower in March. Growth in private deposits accelerated to 6.3 percent from 5.8 percent in February. Loans grew by 11.5 percent in March, after growing 12 0 by 12.0 percent in February. 8 -1 • Official reserve assets decreased by USD 3.9 billion from April to USD 120.3 billion at the end of May. The decline was mainly due to the government external debt payments as well as the banks’ foreign currency 4 -2 placement reduction in Bank Indonesia, in the anticipation of foreign currency liquidity needs for the dividend payments cycle and also the Idul Fitri holiday. 0 -3 The reserve asset position was equivalent to financing of 6.9 months of Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 imports or 6.7 months of imports and government external debt payments. Source: BPS; World Bank staff calculations • Indonesian financial assets recorded strong outcomes. The Rupiah Indonesian financial assets recorded strong outcomes appreciated by 1.2 percent against the US dollar in the 30 days to June 13, (index, June 13, 2017=100, LHS; IDR thousands per reaching IDR 14,270 per USD. The Jakarta Composite Index increased by USD and percent, RHS) 3.3 percent and bond yields, on average, decreased across all tenors. 130 IDR 000 per USD (RHS) 16 • Bank Indonesia (BI) held its 7-Day Reverse Repo Rate at 6.00 percent 120 in May. BI also maintained the Deposit Facility (DF) and Lending Facility (LF) 14 rates at 5.25 percent and 6.75 percent, respectively. 110 • External debt grew by 7.9 percent yoy to USD 387.6 billion at the end of 100 Jakarta Composite Index 12 Q1 2019. Government and central bank external debt was USD 190.5 billion, 90 10 while private sector (including state-owned enterprises) external debt was 80 USD 197.1 billion. 70 8 • The labor force grew by 1.7 percent yoy to 136.2 million in February 60 while the unemployment rate decreased to a record low of 5.0 percent. 5-yr IDR government 6 50 bond yield (RHS) • The government, Bank Indonesia and Financial Services Authority 40 4 agreed on 12 programs to expand electronification of social aid Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 programs, public transportation ticketing systems and local government transactions. Source: BI; JSX; World Bank staff calculations