INDONESIA March 2019 Summary of key economic developments Manufacturing PMI ticked up in February Indonesia’s real sector recorded mixed outcomes, with the Manufacturing (index, LHS) Purchasing Managers’ Index (PMI) ticking up and motorcycle sales growth 53 accelerating, while the consumer confidence index eased and car sales plunged. Headline inflation continued to ease as food prices grew slower in February, while administered price inflation and core inflation remained 52 stable. Foreign exchange reserves continued to increase at the end of February, as a result of oil and gas foreign exchange receipts, as well as the 51 issuance of global Sharia bonds. Indonesian financial assets also recorded mixed outcomes, with the Jakarta Composite Index declining in the 30 days 50 to March 11 and the Rupiah depreciating, while bond yields decreased across all tenors over the same period. 49 Further details 48 Feb-18 Aug-18 Feb-19 • The Nikkei/Markit Indonesia Manufacturing Purchasing Managers’ Source: CEIC; World Bank staff calculations Index rose slightly from 49.9 in January to 50.1 in February. While new order inflows stabilized, and employment rose, output fell slightly in February. Headline inflation continued to ease in February Firms cut back on purchasing activity for the first time in over a year and (percent yoy) reported a further fall in stocks of finished goods. 12% • Bank Indonesia’s retail sales index grew 10.9 percent yoy in February. The growth was mainly due to higher sales of clothing as well as cultural and 10% Administered recreational commodities. 8% • Industrial Production Index recorded a 5.2 percent yoy growth in 6% Food January. 4% Headline • Motorcycle sales grew by 20.6 percent yoy in January, faster than the 2% Core 8.9 percent recorded in December. Meanwhile, car sales declined by 15.4 percent in January, after growing 3.2 percent in December. 0% • Bank Indonesia’s consumer confidence index eased from 125.5 in -2% January to 125.1 in February. Consumers’ confidence about current Feb-17 Aug-17 Feb-18 Aug-18 Feb-19 employment, income and buying conditions fell slightly. Moreover, consumers also indicated concerns over higher inflationary pressures in the Source: BPS; World Bank staff calculations next 3 months (March to May), in the anticipation of Idul Fitri festivities. Private deposits grew slower while loans accelerated • In February, headline inflation eased to 2.6 percent yoy from 2.8 percent (percent yoy) in January. Food price inflation continued to moderate from 2.0 percent to 15 0.7 percent and drove the overall moderation in headline inflation. The prices of several commodities moderated due to more supply during the harvest Loans season. Both administered price inflation and core inflation remained steady 12 at 3.4 percent and 3.1 percent, respectively. • Private deposits grew slower while loans accelerated in January. 9 Private deposits grew by 5.1 percent yoy in January, after growing 6.1 percent in December. Loans accelerated from 11.7 percent in December to 11.9 percent in January. This was in line with the decreased of both saving 6 deposit rates and average lending rates by 14 bps and 42 bps, respectively, Private deposits over the year (January 2018 to January 2019). 3 • Official reserve assets increased by USD 3.2 billion to USD 123.3 billion Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 at the end of February. The increase was mainly due to oil and gas foreign Source: BPS; World Bank staff calculations exchange receipts, as well as the issuance of global Sharia bonds. The Indonesian financial assets recorded mixed outcomes reserve asset position was equivalent to financing of 6.9 months of imports (index, March 10, 2017=100, LHS; IDR thousands per or 6.7 months of imports and government external debt payment. USD and percent, RHS) • Indonesian financial assets recorded mixed outcomes. The Rupiah 130 IDR 000 per USD (RHS) 16 depreciated by 2.4 percent against the US dollar in the 30 days to March 11, reaching IDR 14,324 per USD. The Jakarta Composite Index declined by 2.4 120 14 percent over the same period. However, bond yields, on average, decreased 110 across all tenors. 100 Jakarta Composite Index 12 • Bank Indonesia (BI) held its 7-Day Reverse Repo Rate at 6.00 percent 90 in February. BI also maintained the Deposit Facility (DF) and Lending 5-yr IDR government 10 80 Facility (LF) rates at 5.25 percent and 6.75 percent, respectively. bond yield (RHS) 70 8 • The government signed the Indonesia-Australia Comprehensive 60 Economic Partnership Agreement (IA-CEPA). 6 50 • The Ministry of Finance is to relax the value-added tax refund 40 4 requirements for foreign tourists in an effort to attract 20 million Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 tourists in 2019. Source: BI; JSX; World Bank staff calculations