Bank Indonesia Sees 5.2%-5.6% GDP Growth in 2019

Indonesia's Forex Reserves Lowers to US$120.1B in January
Board of Governors of Bank Indonesia - Photo by Bank Indonesia

JAKARTA (TheInsiderStories)—Bank Indonesia (BI) estimated economic growth in the range of 5.2 per cent to 5.6 per cent in 2019, lower than government’s target of 5.4 per cent to 5.8 per cent, said Bank Indonesia’s governor Perry Warjiyo in the House of Representatives plenary meeting on Thursday (31/05).

Warjiyo said the economic growth will be driven by rising investment, higher commodity price, and fiscal stimulus. Bank Indonesia also forecast the economic growth of 5.1 per cent to 5.5 per cent in 2018.

In addition, BI expects inflation of 2.5 per cent to 4.5 per cent in 2019 and the rupiah currency in the range of Rp13,800 to Rp14,100 per US$1. Furthermore, the current account deficit is estimated at 2 per cent to 2.5 per cent in 2019.

According to the prediction, Warjiyo said, the central bank will focus on stability, then stimulating economic growth. Bank Indonesia prepared some policies namely monetary policy instrument, macro-prudential, financial market deepening and financial system, and mapping the sharia economy.

“With the global pressure, we have no choice but pro-stability policy,” he said.

The Bank Indonesia’s estimate on economic growth is lower than government’s prediction. In the same meeting, Finance Minister Sri Mulyani Indrawati projected economic growth in the range of 5.4 per cent to 5.8 per cent. However, this target is higher than this year target of 5.4 per cent.

The minister is optimistic the economy in 2019 would be better as Indonesia’s economic growth is supported by a more balanced engine of growth consisting of household consumption, investment, exports and import, and government spending.

She said inflation has been tame at the range 3.5 per cent over the past three years, lower than the average inflation over past ten years of 5.6 per cent. The low rate of inflation is an important factor to maintain consumption and people’s purchasing power.

Furthermore, Mulyani claimed there is an improvement in investment supported by the healthy banking sector and capital market, infrastructure development program, and better business and investment climate. The export performance also showed improvement since 2017 even though Indonesia still record deficit in the trade balance.

Nevertheless, she noted, volatility in global economy potentially disrupt domestic economic stability. One of the pressures in global economy includes a strong currency of US dollar against exchange rate in developing countries.

“But Indonesia’s fundamental economy are strong enough to deal with the pressure,” she said.

Mulyani said the government aware of needs for responsive steps to deal with the risks from the global economy. The government continues to be vigilant and stand ready to maintain the economic and financial stability together with Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation. It includes stabilizing the rupiah, maintain low inflation, control fiscal and current account deficit.

Mulyani set fiscal deficit in 2019 in the range of 1.6 per cent to 1.9 per cent of gross domestic product (GDP). Previously, Indonesia’s government expects to set the rupiah assumption at 13,700-14,000 a dollar on average next year. The government also expects Indonesian crude oil prices to average at $60-$70 per barrel next year.

Indonesia’s average annual growth rate was 5.6 per cent in the period 2001-12, equivalent to a GDP per capita of about US$3,500. However, the decline in commodity prices and demand slowed growth to 4.79 per cent in 2015, 5.02 percent in 2016, and 5.07 per cent in 2017.