JAKARTA (TheInsiderStories) – Indonesia’s GDP is expected to decline to 5.0 percent in 2019, from 5.2 percent in 2018, due to a slowdown in net export growth. While, economic growth of Southeast Asian (ASEAN) region to decline slightly to 4.8 percent, from 5.1 percent in 2018, according to the latest report of Economic Insight: South-East Asia by the Institute of Chartered Accountants in England and Wales (ICAEW) today.
According to ICAEW analysis, the symptom of the decline was due to reduced export growth as trade protection became tighter and demand for Chinese imports weakened. In addition, weak global economic activity at the end of 2018 and declining exports, where only Malaysia recorded by positive growth.
“Looking ahead, we expect the risks to the region to be primarily on the downside. A sharper slowdown in Chinese economic growth triggered by worsening confidence, or a renewed escalation in US-China trade tensions, both affect global trade and growth across the region,” said ICAEW Economic Advisor & Oxford Economics Lead Asia’s economist Sian Fenner.
In Indonesia, he stated, domestic demand remained the key engine of growth in this quarter as expected, although the data was mixed. GDP growth rose in Q4 2018 to 5.2 percent year-on-year, unchanged from the previous quarter and bringing full year growth to 5.2 percent, up slightly from 5.1 percent in 2017.
Meanwhile, consumer spending picked-up slightly, growing 5.1 percent year-on-year, helped by mild inflation and a healthy labour market.
He viewed, looking ahead, modestly higher inflation and lower planned increases in minimum wages compared to last year are likely to dampen real household income growth and consumption growth, offsetting the impact of pre-election giveaways in the 2018 Budget.
Director of South-East Asia Regional ICAEW Mark Billington, said that although fixed investment supports Indonesia’s economic growth, the risk has increased. The potential for a worsening report on the financial position of state-owned enterprises (SOEs), uncertainty in the profitability of several infrastructure projects, and a larger current account deficit are challenges the economic prospects.
“Coupled with an inadequate export environment amid the slowing demand for Chinese imports, GDP growth is expected to decline to 5 percent this year, from 5.2 percent in 2018,” he explained.
On the other side, Bank Indonesia (BI) will maintain a strict monetary policy stance. The rupiah against the US dollar fell 10 percent in Q1 2018 and the end of October 2018, due to pressure from a number of foreign exchange markets.
BI is trying to reduce the width current account deficit and support the strengthening of the Rupiah and limit Indonesia’s external imbalances, with a 175bp increase from the interest rate increase since May.
With expectations that the Fed will continue to tighten US monetary policy in the end of this year, foreign ownership of Indonesian bonds (almost 40 percent) could cause the Rupiah to become vulnerable to changes in investor sentiment.
BI’s policy level is likely to rise throughout the year, said economist, albeit at a slower pace than in 2018. Overall, BI is expected to raise interest rates once this year by 25 basis points in Q3.
Furthermore, he projected, Singapore’s GDP declined by 2.4 percent in 2019, from 3.2 percent in 2018, which was burdened by external challenges. But the light expansion budget will support economic growth, although it does not have a significant impact on household expenditure costs.
While, the outlook for the manufacturing and services sector remains subdued, with the slowing in global trade which is expected to have an impact on the externally dependent manufacturing and service sectors. As known, Singapore is very dependent on China, through the supply chain and meeting China’s domestic demand.
In addition, momentum in household expenditure is expected to decline from the strong increase from 2018, because higher domestic interest rates and negative wealth impacts (related to falling equity prices in 2018) will reduce the increase in household purchasing power.
But he sees, Singapore’s residential investment remains sluggish and the challenges in business investment in 2019 are increasing. The recent decline in commodity prices will reduce investment in the oil and gas sector, so that corporate profits are expected to slow down.
Written by Daniel Deha, Email: email@example.com