OECD Predicts Asian Economy Slows for Next Five Years
The world economy is projected to grow by a decade-low 2.9 percent this year and 2020 - Photo: Special

JAKARTA (TheInsiderStories) – Organization for Economic Co-operation and Development (OECD) estimated Asian economy will experience a slowdown in the next five years. This was influenced by the slowing down of the global trade due to the tariff war.

Head of Asia Desk OECD’ Development Center, Kensuke Tanaka explained, in the period 2019-2023, the average of economic growth in Asia only grow 6.1 percent, slower than the previous period in 2012-2016, which grew 6.8 percent.

This was influenced by the slowing economic growth of two major Asian countries, such as China and Singapore, which will experience a slowdown in growth to 5.9 percent and 2.7 percent respectively, from 7.3 percent and 3.5 percent.

Even so, he said, high growth still be experienced by India, wherein the period 2019-2023 is predicted to growth 7.3 percent, faster than the previous five-years average growth at 6.9 percent.

“Domestic demand is expected to continue, especially household expenditure. However, trade faces excessive uncertainty due to the widespread tariff war,” he said in Jakarta last week.

However, he revealed, the slowdown in growth would not occur the Southeast Asian countries (ASEAN) countries. According to him, in the 2019-2023 period, the OECD estimated that ASEAN economic growth would be in the range of 5.2 percent, faster than the 2012-2016 period which was 5.1 percent.

Thailand and Vietnam, it is estimated, will still experience significant growth, with each growing 3.7 percent and 6.5 percent, faster than the previous period of 3.4 percent and 5.9 percent.

Meanwhile, Indonesia and the Philippines growth are in stagnation level. Each growth is expected in the range of 5.3 percent and 6.6 percent. Then Malaysia slowing down to 4.6 percent from the previous period capable of growing 5.1 percent.

“Most monetary authorities in the region have raised their benchmark interest rates to offset monetary normalization policies in developed economies. However, the policy was balanced with liquidity easing policies to encourage growth. The region’ fiscal position is also maintained stable,” he added.

The stagnation of Indonesia’ economic growth was highlighted by Universitas Indonesia economist Febrio Kacaribu. Cause, he rated, the country still adheres to a closed economy.

As a result, the Rupiah rate and the current account deficit (CAD) are not stable. Even though the economy is more open, the more our economy is stable, he said on the same occasion.

He explained Indonesia’ gross domestic product (GDP) per capita in 2018 was Rp14,837.4 trillion (US$1.05 billion), based on World Bank data. This value shows Indonesia as the country with the largest economy in Southeast Asia.

When compared with Thailand, the elephant country’ GDP is only 40 percent of Indonesia’ GDP. Even with Singapore, Malaysia, and the Philippines which have nominal GDP lower than Indonesia, he added.

He said, with the largest economic size in ASEAN, Indonesia’ openness was only 40 percent. While Malaysia reached 136 percent, Thailand 123 percent and Vietnam 200 percent.

As a result, the Rupiah exchange rate is more volatile compared to the three countries. Also, the current account in Indonesia is also unstable compared to Malaysia and Thailand which show a surplus trend.

Economic openness is the ratio of trade to GDP. Kacaribu explained that to improve economic openness, Indonesia needs to increase foreign direct investment (FDI). He stated: “When a lot of investment we will have a lot of production.”

Unfortunately at present Indonesia is also not friendly to foreign investment. He gave an estimate of $100 million, only $5 million in foreign investment. This certainly affects the velocity of money.

The smaller the capital or investment that enters the turnaround gets smaller and the market becomes thinner. Nevertheless, Kacaribu noted, Indonesia must be able to attract export-oriented investments so that it is no longer missed and even exacerbates imports.

In addition to FDI, investments that enter Indonesia are in the short term, portfolio investment. Oftentimes, portfolio investment is blamed as the cause of CAD and Rupiah pressure because of its rapid movements.

To deal with this, he added, Indonesia does not even close itself from portfolio investment. The existence of portfolio investment is very important in the financial market if this is prevented from FDI it can be weak. “Because they need investment facilities in the financial market. So we have to open it too,” he added.

It’s just that, there needs to be an effort to restrain the pace of portfolio investment out. One of them is the reverse Tobin tax, which is currently still being reviewed by the government. So when developed countries like the United States offer higher interest rates, portfolio fund owners don’t immediately withdraw their funds, he concluded.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com