Commodity Price Hike Boosts Confidence in Q4 Growth

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JAKARTA (TheInsiderStories) – Prospective Indonesian economic growth in the fourth quarter is looking up, thanks to rising prices of commodities and improvement in the global economy, according to Bank Indonesia (BI).

In its official statement, the central bank stated that investment will also increase in line with rising exports in the fourth quarter, following acceleration of economic structural reform and a conducive investment climate.

‘The relaxation of monetary policy is expected to boost the momentum of economic growth,’ the bank’s Head of Communications, Agusman, said on Wednesday (Nov. 8).

Agusman revealed that investment grew the highest since the first quarter of 2013, driven by investment in both construction and non-construction sectors.

‘Construction investment grew high drawn by infrastructure development, while fresh non-construction investment was driven by the purchase of machinery and equipment,’ he pointed out.

The central bank considered the realization of 5.06 per cent economic growth in the third quarter of 2017 as better than that of the previous quarter and also for the same period of last year.

In responding to central bank optimism, Chairman of Indonesian Chamber of Commerce and Industry Rosan Roeslani agreed he is quite optimistic that business expansion in the last quarter of this year will bump upward slightly, helped by commodity price recovery throughout the year.

‘Improvement in export performance is derived from better prices for commodities, such as crude palm oil and coal, as well as improvement in the global economy,’ he told TheInsiderStories.

He admitted that in the third quarter, growth of household consumption had been slower than in the previous quarter, but there has been an improvement in government consumption, exports, and investment.

Based on Statistics Indonesia data, household consumption in the third quarter of 2017 grew 4.93 per cent, a bit slower than in the second quarter, when it stood at 4.95 per cent.

Oil prices are forecast to rise to US$56 a barrel in 2018, from US$53 this year, as a result of steadily-growing demand, agreed production cuts among oil exporters and stabilizing U.S. shale oil production, while the surge in metal prices is expected to level off next year, the World Bank said on Thursday.

Prices for energy commodities – which include oil, natural gas, and coal – are forecast to climb 4 per cent in 2018 after a 28 per cent leap this year, the World Bank said in its October Commodity Markets Outlook.

The metals index is expected to stabilize in the coming year, after a 22 per cent jump this year as a correction in iron ore prices is offset by increased prices for other base metals. Prices for agricultural commodities, including food commodities and raw materials, are anticipated to recede modestly in 2017 and edge up next year.

‘Energy prices are recovering in response to steady demand and falling stocks, but much depends on whether oil producers seek to extend production cuts,’ said John Baffes, Senior Economist and lead author of the Commodity Markets Outlook. ‘Developments in China will play an important role in the price trajectory for metals.’

The oil price forecast is a small downward revision from the April outlook and is subject to risks. Supplies from producers such as Libya, Nigeria, and Venezuela could be volatile. Members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers could agree to cut production further, maintaining upward pressure on prices.

However, failure to renew the agreement could drive prices down, as could intensified production from the U.S. shale oil industry. Natural gas prices are expected to rise 3 per cent in 2018, while coal prices are seen retreating, following a climb of nearly 30 per cent in 2017. China’s environmental policies are anticipated to be a key factor determining future trends in coal markets.

Written by Elisa Valenta, email: elisa.valenta@theinsiderstories.com