Indonesia: World Bank Revises GDP Outlook for Indonesia – 3 Oct 2017

  • The World Bank dropped its growth outlook for Indonesia’s GDP in 2017 while maintaining its predictions for in 2018 due to an unexpectedly dormant private consumption rate that accounts for over half of Indonesia’s GDP, according to the bank’s latest flagship report published on 3 Oct 17.
  • The Oct 17 edition of the Indonesia Economic Quarterly, titled “Closing the Gap,” showed that the bank expected Indonesia’s real GDP to increase by 5.1% in 2017 and 5.3% in 2018. That outlook is slightly lower compared to an increase of 5.2% in 2017 and 5.3% in 2018 as featured in the previous report.
  • Indonesia’s real GDP grew 5% annually in 2Q17, unchanged from 1Q17.
  • The report noted that after enjoying a surge in 1Q17, export and import growth both slowed significantly due to lower commodity prices in the second quarter and fewer working days due to the annual Idul Fitri celebration. Lower exports took a toll on the country’s current account deficit (CAD), which doubled to 2% of GDP in 2Q17.
  • Sander mentioned several “most possible explanation points” to temporary causes, including short-term adjustments to constructive reforms, sluggish industrial and productivity growth, low commodity prices and “noisy” national accounts data caused by the Idul Fitri holiday that reduced the number of working days.
  • There are, however, some stimulus available for Indonesia in terms of both fiscal and monetary policies.
  • The 2017 revised state budget sets a higher fiscal deficit of 2.9% of GDP, up from 2.4% in the original budget, that will allow for more expenditures. Bank Indonesia, the country’s central bank, cut its interest rates by 25 basis points in Aug 17 and Sep 17 simultaneously to spur growth.
  • The report also highlights the need for more participation from the private sector.

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