Sunday , July 3 2022

"The economy of RI is pretty heavy, even very heavy!"



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Jakarta, CNBC Indonesia – The International Monetary Fund (IMF) lowered its forecast for global economic growth in 2019 by 0.1 percentage points to 3.2%. The IMF also lowered its forecast for economic growth in 2020 to just 3.5%.

Entering the region, the World Bank forecasts that economic growth in developing countries will decline to its lowest level in four years, at 4% in 2019.

The point is that the global economy is in trouble. Everyone is having fun!

A number of countries are working to overcome the effects of financial pressure and political uncertainty. There are many reviews about CNBC Indonesia related to global economic conditions.

"The economy of RI is pretty heavy, even very heavy!"Anthony Kevin / CNBC Indonesia

These barriers also make global trade growth the weakest in 2019 since the financial crisis a decade ago.

Trade wars are a major problem right now. China and the US are at war as two of the world's economic powers. This causes other countries to have a bad mood in the export-import process.

While almost every economy is hit by winds due to the trade war, the poorest countries face the worst challenges because of instability, geographical isolation and deep-rooted poverty.

Indonesia Loyo, the data can not lie

Indonesia's economic growth in the second quarter of 2019 was 5.05% y / y (year by year/ YoY). This was announced by the Central Statistical Agency (BPS) on Monday (8.8.2019).

The growth rate is much slower compared to the same period of the previous year (Q2 2018), amounting to 5.27% yoy. This is also the slowest economic growth rate since the second quarter of 2017.

Based on BPS data, Indonesia's economy has been slowing down since the second quarter of 2018.

However, economic growth was hampered this time by the component of gross domestic fixed capital (PMTB). The reason for this is the growth of PMTB in the second quarter of 2019 was only 5.01% yoy, or much slower than in the second quarter of 2018, which reached 5.85% yoy. The delay is 0.84 percentage points.

In fact, only buildings registered growth growth, from 5.02% y / y (quarter II-2018) to 5.46% y / y (quarter II-2019). This is due to the increase in infrastructure development projects in several regions. The rest slows or shrinks.

The deepest shrinkage occurred in capital goods of the "Other equipment" type, which was 0.65% y / y. Although in the second quarter of 2018, this component can still grow to 7.21%.

Meanwhile, vehicle capital goods also contracted by 0.04% year-on-year, reversing the direction of the second quarter of 2018, which rose to 8.01%.

The slowdown in the growth of capital goods for vehicle types was also influenced by the slow data on vehicle sales in the second quarter of 2019. Car sales declined more than 10% annually.

It should be noted that the PMTB component is closely linked to investment and business expansion.

Basic questions of Indonesia

The most difficult problem for Indonesia right now is maximizing the massive infrastructure development already implemented in the Jokovi era. Since taking over the edge of the leadership of Susilo Bambang Yudhoyono (SBY) in 2014, Jokowi has been pushing hard for infrastructure development. This is clear from the allocation of funds in the APBN / APBNP to infrastructure that continues to boil over in the era of its leadership.

In 2014, the government allocated a budget of Rp 154.7 trillion for infrastructure development. Remember that the 2014 budget is still made by SBY, not Jokowi, because Jokowi only took office in October or just a few months before the year ends. In 2015, when Jokowi's budget was prepared, the allocation of infrastructure development funds grew by 65.5% to Rp 256.1 trillion. The infrastructure development budget continues to increase in the coming years.

In addition to its large budget, Jokowi's infrastructural development also proved to be non-Javanese.

Read:
Is Jokowi Worth Calling Mr Infrastructure?

Unfortunately, the splendid infrastructure development in the Jokovi 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 5% lower limit, we cannot. When Refinitiv released its data in 2015, or the first year that Jokowi took up his full term 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 that Indonesia is affected by the global economic slowdown, in fact it is indeed true. But the problem is that when the global economy improves, Indonesia's economic growth will be so great.

In 2017, the IMF noted that global economic growth rose to 3.789% (up from the previous 3.372% in 2016), marking the highest growth rate since 2011. If calculated, global economic growth since 2016. by 2017, it jumped from 0, i.e. 42 percentage points. On the other hand, Indonesia's additional economic growth over the same period (2016 to 2017) is only 0.05 percentage points, from 5.02% to 5.07%. It is clear that the Indonesian economy cannot benefit from inertia when the global economy is moving fast.

De-industrialization is the cause of the Indonesian economy in the way that infrastructure development is accelerated. In the era of Jokowi management, the manufacturing sector (manufacturing) continued to grow slowly. Of note, the manufacturing sector is the backbone of the Indonesian economy. The contribution of the manufacturing sector to the formation of gross domestic product (GDP) is still the largest, at about 20% (as of 2018). However, from year to year the spine seems to be riddled with osteoporosis, so fragile, so fragile, and its strength diminishes.

Read:
How chaotic is the industry?

Apart from de-industrialization, the problem of foreign investment recording (PMA) or alien direct investment (FDI) has also hampered the pace of the Indonesian economy in the era of Jokowi's leadership. The lack of tax incentives and return policies that we often see in the Jokowi era are the factors behind the sluggishness of the PMA.



They said a tough economy

CNBC Indonesia gathered several responses from the same statement to several analysts, economic observers, to the CEO.

"Do you think our economy is heavy and challenging?"

Here is the answer:

Director of the Bank of Indonesia Monetary Management Nanang Hendarsah:

Almost all countries are currently facing the same dire challenges, namely the economy and global financial markets, which are increasingly difficult to forecast. Therefore, the first safeguard is to maintain stability, but at the same time it is necessary to use space (political space) to mitigate the impact of global economic slowdown through increased monetary and fiscal incentives.

President of PT Bank Central Asia Tbk Jahja Setiaatmadja:

When playing football, the field is muddy because it is raining, so you must be careful not to slip due to slippage. So, nowadays, there is no need to force high credit growth amid bad macro conditions, especially because of the uncertain world situation, the eruption of very bad credit shows that the negative impact can always be present in the business world, so it must be straightforward.,

Economist from Bahana Sekuritas Satria Sambijantoro:

From financial markets, high global uncertainty can have a significant impact on the domestic economy. The Indonesian economy is indeed strong in the country, supported by consumption and investment, but future prospects are also influenced by capital flows.

Due to geopolitical tensions and trade wars, many investors or global fund managers have chosen to provide their assets in the form of "money" rather than invest in the real sector. Companies that have more money do not invest in the form of a capex, but choose to buy shares in the capital market. Asset prices as stocks become "overvalued", "volatile" and vulnerable to correction. This increases the "risk aversion" of the global market, which then leads to strict liquidity in all countries, especially developing countries such as Indonesia.

Due to the high share of foreign ownership in the stock and bond markets (around 40%), Indonesia is quite influenced by external sentiment. Strict liquidity can make it difficult for local companies to obtain funds to grow their businesses. This may affect the macro conditions of Indonesia. The government and the Bank of Indonesia must remain vigilant about global risks.

INDEF economist, Annie Sri Harti

Weight. Because in the second quarter, inertia, or the great opportunity, and with the money, must actually be used by the government. For example, doping or ammunition, ie there are elections and Eid. Usually, if there is an Eid, consumption levels will increase, especially when there are simultaneous elections throughout Indonesia.

This happened in the II-2019 quarter, with all the momentum, but in the second quarter of 2019 we were surprised by the slowdown in results. This means that if there is no ammunition, it will decrease even more, so if you see the trend, we will certainly calculate the quarter III-2019 and quarter IV-2019 to fall.

Then the sources of growth in the economy, which can play a role in driving other than household consumption, are investment. But instead, the source of investment growth is actually diminishing, because household investment and consumption are highly dependent on incentives. But a significant impetus for household consumption is government spending.

In fact, the stimulus should not be an expense part, especially as the government eases fiscal policies as incentives. But how effective this is to see. In my opinion, the 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 that Trump and Jingping continue to interact, which certainly has a negative impact on developing countries, including Indonesia.

But the bigger challenge I see comes from the inside.

CORE Economist Peter Abdullah

Yes heavy and challenging, that's for sure. That is why a minister of the same class as Sri Mulani Indravati is not able to overcome it completely.

Permata Bank economist Josua Pardede

Of course it is difficult and yes, I think all countries are experiencing it, because it is not really supportive at a global level. The re-warming of trade trends and the impact we have experienced over the last two quarters, where export performance has slowed. Even in the first semester of 2019 yesterday, it had not yet contributed to economic growth. Exports are still depressed compared to last year.

In fact, the short-term challenges are how to deal with and anticipate 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 greater than the external one, namely the trade war. There are CADs throughout the country that continue to expand, but CAD also has a global impact.

KEIN Vice-President Arif Budimanta

At the global level, we are currently facing a policy of blocking political economy or a zigzag policy. For example, trade war, currency war and quantitative easing. This zigzag model of policy obviously has not brought prospects for improving the world economy, which is getting better. Domestic policy responses must start with the micro, namely the real sector.

The ultimate goal should be that of job creation, with the work of income carriers. There is income, there is purchasing power, it is driving the economy to move. Then the real sector developed / implemented should be based on local resources.

People want to try to be simplistic, not complicated. Especially beginners in business. A validation policy must be in place. Because if you only rely on the current economic model, this is the optimal bet. You must dare to make a structural transformation. Structural transformation is marked by the reassertion of economic actors prioritizing SMEs that have great regional / global competition.

(Additional reporting: Lidya Julita Sembiring)

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