Jakarta, CNBC Indonesia – The International Monetary Fund (IMF) lowered its forecast for global economic growth in 2019 by 0.1 percentage point to 3.2%. The IMF also reduced its forecast for economic growth in 2020 to just 3.5%.
Entering the region, the World Bank predicts that economic growth in developing countries will drop to its lowest level in four years by 4% in 2019.
The point is that the global economy is in trouble. All slowing down!
Many countries are working to overcome the effects of financial pressure and political uncertainty. There have been many reviews on CNBC Indonesia related to global economic conditions.
Anthony Kevin / CNBC Indonesia
These obstacles make global trade growth the weakest in 2019 since the financial crisis a decade ago.
Trade wars are now a major problem. China and the US are at war as two of the world's economic powers. As a result, other countries are weakening in the export and import process.
While almost every economy faces wind gusts due to the trade war, the poorest countries face the harshest challenges due to fragility, geographical isolation and deep-rooted poverty.
Indonesia Loyo, the data cannot be faked
Indonesia's economic growth in the second quarter of 2019 was 5.05% year-on-year (compared to the same period last year/ YoY). This was announced by the Central Bureau of Statistics (BPS) on Monday (05/08/2019).
The growth rate is much slower compared to the same period of the previous year (Q2 2018) which was 5.27% compared to the same period of the previous year. This is also the lowest economic growth rate since the second quarter of 2017.
Based on BPS data, Indonesia’s economy has been in a slow trend since the second quarter of 2018.
However, this economic growth was hampered by a component of Gross Domestic Equity (PMTB). The reason for the growth of PMTB in the second quarter of 2019 was only 5.01% compared to the same period of the previous year, or much slower than in the second quarter of 2018, which reached 5.85% compared to the same period. the previous year. The slowdown is 0.84 percentage points.
In fact, only buildings recorded an increase, from 5.02% year-over-year (quarter 2018) to 5.46% year-over-year (quarter II-2019). This was due to the rise in infrastructure development projects in several regions. The rest slows or shrinks.
The largest contraction occurred in capital goods of other equipment, which amounted to 0.65% compared to the year-on-year growth. Although in the second quarter of 2018 this component could grow up to 7.21%.
Meanwhile, vehicle capital goods were also down 0.04% year-over-year, reversing the direction from the second quarter of 2018, which could have risen to 8.01%.
The slowdown in the growth of capital goods for vehicle types was also influenced by slow data on vehicle sales during the second quarter of 2019. Car sales declined more than 10% in the same year.
It should be noted that the PMTB component is closely linked to investment and business expansion.
Key Issues of Indonesia
Currently, the most difficult problem for Indonesia is maximizing the massive infrastructure development already implemented in the Jokowi era. Since taking over the leadership of Susilo Bambang Yudhoyono (SBY) in 2014, Jokowi has been diligently undertaking infrastructure development. This can be clearly seen from the allocation of funds in the APBN / APBNP to infrastructure that continues to boom in his leadership era.
In 2014, the government allocated a budget of Rp 154.7 trillion for infrastructure development. Recall, the 2014 budget is still being drafted by SBY, not Jokowi since Jokowi only took office in October or just months before the year closes. In 2015, when Jokowi's budget was prepared, infrastructure development spending increased by 65.5%, to SEK 256.1 trillion. The infrastructure development budget continues to grow in the coming years.
With a large budget, it turned out that the development of infrastructure made by Jokowi was not public.
Is Jokowi worth calling Sir Infrastructure?
Unfortunately, the development of magnificent infrastructure in the Jokowi era cannot translate into high economic growth. There is no need to talk about economic growth of 7%, if we do not go beyond the lower limit of 5% we cannot. With the launch of Refinitive data, in 2015 or the first year in which Jokowi took over as president, economic growth actually declined to 4.79%. After that, economic growth is always comfortable at the lower limit of 5%.
If you say Indonesia has been affected by the slowdown in the global economy, in fact it is indeed true. But the problem is that when the global economy improves, Indonesia's economic growth will be so much.
In 2017, the IMF noted that global economic growth increased to 3.789% (from the previous 3.372% in 2016), which marked the highest growth rate since 2011. If calculated, global economic growth from 2016 to 2017 experienced an increase of 0, 42 percentage points. On the other hand, Indonesia's additional economic growth over the same period (2016 to 2017) was only 0.05 percentage points, from 5.02% to 5.07%. It is clear that the Indonesian economy cannot take advantage of the momentum when the global economy moves sharply.
De-industrialization is the cause of the Indonesian economy in a way that accelerates infrastructure development. In the era of Jokowi's leadership, the manufacturing sector (manufacturing) continued to grow slowly. The manufacturing sector is the backbone of the Indonesian economy. The contribution of the manufacturing sector to the formation of Gross Domestic Product (GDP) remains the largest, at around 20% (as of 2018). However, year after year, the spine seems to have osteoporosis, so fragile, so fragile, and its strength decreases.
How come the manufacturing industry is chaotic?
Apart from de-industrialization, the problem of foreign investment labeling (PMA) or foreign direct investment (FDI) also hampered the pace of the Indonesian economy in the era of Jokowi's leadership. The lack of tax breaks and the backwards policies we often find in the Jokowi era are factors behind the slow pace of the PMA.
They said it was a difficult economy
CNBC Indonesia gathered several responses from the same statement by several analysts, economic observers, to the CEO.
"According to you, is our economy tough and challenging?"
Here is the answer:
Director of the Bank of Indonesia Monetary Management Department Nanang Hendarsah:
Almost all countries face the same difficult challenges, these are the economy and the global financial markets, which are increasingly difficult to predict. Therefore, the first defense is to maintain stability, but at the same time it is necessary to use space (policy space) to mitigate the impact of the slowdown of the global economy by increased monetary and fiscal stimulus.
CEO of PT Bank Central Asia Tbk Jahja Setiaatmadja:
When playing football, the pitch is muddy as it is raining so you have to be careful not to slip due to slippage. So, at this point, no high credit growth should be forced in the midst of poor macro conditions, especially because of the uncertain world situation, the eruption of a lot of bad credit indicates that a negative impact can always be present in the business world, so it must be direct..
Bahana Economist Sekuritas Satria Sambiantoro:
From the financial markets, great global uncertainty can have a significant impact on the domestic economy. Indonesia's economy is really strong in the country, backed by consumption and investment, but future prospects are also affected by capital flows.
Because of geopolitical tensions and trade wars, many investors or global fund managers have chosen to secure their assets in the form of "cash" rather than investing in the real sector. Companies that have more money do not invest in the form of "capex", but decide to "buy" shares in the capital market. Property prices like stocks become "overvalued", "volatile" and subject to correction. This increases the "aversion to risk" in the global market which then causes tight liquidity in all countries, especially developing countries like Indonesia.
Due to the high share of foreign ownership in the stock and bond markets (around 40%), Indonesia is heavily influenced by external sentiment. The tight liquidity of domestic companies can make it difficult to raise funds for business development. This can affect the macro conditions of Indonesia. The government and the Bank of Indonesia must keep a close eye on global risks.
INDEF Economist, Enny Sri Hartati
Weight. Because in the second quarter, the momentum or big opportunity, and together with the money, should be used by the Government. For example, destroying weapons or ammunition, i.e. there are choices and Eid. Usually, if there is an Eid, the level of consumption will rise, especially if there are concurrent choices throughout Indonesia.
It happened in the fourth II-2019. the whole swing, but in the fourth II-2019. we were surprised by the slowdown in results. This means that if there is no more ammunition, so if you see a trend, we will certainly calculate that it will be in quarter III-2019. and quarters IV-2019 fall.
Then there are the sources of growth for the economy, which can in addition to starting a home run as a starter. But instead, the source of investment growth is actually declining because household investment and consumption are highly dependent on incentives. But an important impetus for household consumption is government spending.
Indeed, the stimulus need not be on the expenditure side, especially in the way government relaxes fiscal policy like stimulus. But how effective are we to see. In my opinion, incentives are not appropriate at this time.
External challenges that come from trade wars that do not seem to be signs of stopping. We see Trump and Jinping continuing to reciprocate, which certainly has a negative impact on developing countries, including Indonesia.
But the bigger challenge I see comes from locals.
CORE Economist Peter Abdullah
Yes tough and challenging, that's for sure. That is why a minister from the same class as Sri Mulyani Indrawati himself cannot completely overcome him.
Permat Bank economist Joshua Pardede
Of course it is difficult and yes, I think all countries are experiencing this, because it really is not globally supportive. The re-warming of trade trends and the impact we have felt in the last two quarters, where export performance has slowed. Even yesterday, in the first semester of 2019, it has not yet contributed to economic growth. Exports are still down compared to last year.
In fact, short-term challenges are resolving and predicting a trade war, while, on the other hand, we continue to try to increase investment to drive economic growth.
But I think the shock is bigger than an external one, namely the trade war. Inside the country, CADs are still expanding, but CAD is also having a global impact.
KEIN Deputy President Arif Budimanta
At the global level, we are currently facing a policy of merging a political economy or a zigzag policy. For example, trade war, currency war and quantitative easing. This cyclical policy model has clearly not produced the prospect of improving a global economy that is getting better. Domestic policy responses must start from the micro, ie the real sector.
The ultimate goal must be one that creates jobs, through the work of the income recipient. There is income, there is purchasing power, it causes the economy to move. Then the real sector developed / implemented must be based on local resources.
People want to try to be simplistic, not complicated. Especially beginners in business. There must be a policy for validation. Because if you only rely on the current economic model, that is the optimum pareto. It must dare to make a structural transformation. Structural transformation is marked by the transfirmation of economic actors, which favor SMEs that have great regional / global competition.
(Additional reporting: Lidya Julita Sembiring)
(dru / dru)