Hoping the Economy Is Better in a Political Year
KolomMedia. Optimism for improving the domestic economy began to appear at the beginning of the year. Domestic economic growth in the first three months was at least better than the same period last year.
The release of the Central Statistics Agency (BPS) showed the economy grew 5.06 percent, while in the first quarter of 2017 only 5.01 percent. Hopes that the economy will grow even more will increase, after in the following quarter economic growth was even higher at 5.27 percent.
However, in the third quarter economic growth declined to 5.17 percent. If the average economic growth throughout the three quarters is economic growth only 5.17 percent, while in the 2018 State Budget the economy is targeted to grow 5.4 percent. Economic growth throughout 2018 is also expected to be in the range of 5.1-5.2 percent.
For next year, the economy is also predicted to grow at a level that is more or less the same as this year. While the 5.3 percent economic growth target in the 2019 State Budget is considered difficult to achieve given the still high global economic uncertainty.
Government spending can indeed be boosted to grow higher, but two other sources of growth namely investment and exports are predicted to still experience pressure. Meanwhile, household consumption which is the biggest contributor to Gross Domestic Product (GDP) is projected to remain at the level of five percent.
Nevertheless, a number of government policies aimed at encouraging increased income and purchasing power are predicted to maintain the level of public consumption. The policies include plans to increase the salary of the State Civil Service (ASN) and social security premiums for ASN, TNI and POLRI, increase social assistance for the poor, and increase minimum wages.
In addition, next year's democratic party event is expected to also encourage private consumption. The allocation of social assistance spending alone increased by 26.7 percent in the 2019 state budget, after the 2018 state budget increased 42.6 percent.
Although partially, the effect of each of these policies on overall household consumption is not too large, simultaneously it still has the potential to have a significant impetus on household consumption in the next year.
The Executive Director of the Center of Reform on Economics (CORE) Indonesia assessed, even though the economic challenges faced in 2019 were greater, it did not mean the opportunity to encourage higher economic growth was closed. He believes to be able to encourage economic growth amid global pressure, the government needs to look at the problems of the national economy from its roots and be more innovative in finding solutions.
"Not just using instant approaches to decorate economic performance ahead of constellation in the political year alone, at least the government needs to keep the policies issued not to have an impact on decreasing purchasing power and consumption levels, which are the main pillars of the national economy," Faisal said.
Maintaining the price of subsidized fuel in the country will be crucial to prevent the erosion of inflation and weakening purchasing power, especially for the middle to lower classes. In addition, efforts to stabilize the rupiah exchange rate by Bank Indonesia also need to be carried out carefully to maintain the optimism of consumers and business players in the country.
Regarding inflation itself, in the past four years the inflation rate has indeed been relatively low. However, low inflation is not followed by increasing economic growth. Neighboring countries such as Vietnam and Malaysia for example, which when inflation is low, economic growth increases. While Indonesia, although inflation was relatively maintained low at the level of three to four percent, but economic growth was stagnant at the level of five percent.
The low inflation currently occurring is assessed because of the low purchasing power. Low inflation will be able to represent the success of price control if it is in line with the rate of rapid economic growth.
"The problem is that relatively low inflation is currently not accompanied by accelerating economic growth, so the low inflation reflects a low purchasing power," Eko Listyanto, an researcher from the Institute for Development of Economics and Finance (INDEF) said.
In fact, the largest portion of the community's income is spent on food, especially the middle to lower classes. If the government is unable to maintain the stability of food prices, then the implication will be cross-sectoral, namely the demand for non-food products will also be corrected due to weak purchasing power.
Corrected purchasing power will further undermine economic growth. This is because the most dominant growth engine in Indonesia is the consumption of private households.
Economic growth is "trapped" in the figure of five percent, although the injection of government spending continues to be increased, indicating a strong stimulation of the budget
Economic growth is "trapped" at five percent, although the injection of government spending continues to be increased, signaling a weak budgetary stimulation. The effect then began to spread from the increasingly delayed investment execution due to the "wait and see", to the corrected business ease rating.
Meanwhile, for exports, its growth in the next year has the potential to be depressed as global economic growth continues to slow down mainly due to the effects of trade wars between the US and China. The driving force of the global economy towards the domestic economy in 2019 is predicted to be limited.
The International Monetary Fund (IMF) predicts China's economic growth will slow from 6.5 percent this year to 6.2 percent in 2019, the US slows from 2.9 percent to 2.5 percent, while the European Union slows from 2.2 percent to 2 percent. Even the growth of ASEAN countries is predicted to slow down from 5.3 percent to 5.2 percent.
The economic slowdown of the largest trading partner countries has the potential to suppress demand for imports of these countries. At the same time, prices of a number of commodities, including Indonesia's mainstay commodities such as palm oil, coal and rubber, tend to weaken.
Coupled with the policy effects of a number of major export destination countries, such as the US, European Union and India, which still tend to be protective, Indonesia's export growth next year has the potential to continue to be depressed.
Actually, the weakening symptoms of exports, especially to the main market, have been seen since 2018. In the period January to October 2018, non-oil and gas exports to the US only grew 3.7 percent, one-third of growth in the same period last year reached 10.3 percent. Non-oil and gas exports to China are still growing at 22 percent, but this achievement is actually less than half of export growth in the same period in 2017.
The weakening of the rupiah exchange rate does not seem to have much effect on export growth. This is considered reasonable considering that Indonesia's exports are still largely commodity exports which are more affected by prices in the global market.
Meanwhile, manufacturing export growth is even slower, reaching only five percent compared to commodity exports which reached 22 percent during January to October this year.
When export growth is still depressed, the acceleration of imports that occur this year also seems to still be difficult to control next year. Because the two external factors that are the main drivers of the acceleration of imports, namely the weakening of the Rupiah and the increase in world oil prices, still exist in 2019.
In terms of investment, cumulatively up to the third quarter of 2019, gross fixed capital investment (PMTB) is still growing at 6.91 percent, higher than the same period last year which reached 5.75 percent. Unfortunately, investment that in the last few years has grown the highest has begun to show signs of slowing down, especially foreign investment (PMA). Data from the Investment Coordinating Board (BKPM) showed FDI growth in the second and third quarters of this year had contracted by minus 13 percent and minus 20 percent respectively.
In addition to the factor of slowing world economic growth, the momentum of the political year in the country also tends to make business people wait and see. As happened in 2009 and 2014, investment growth generally experienced a slowdown in the election years. Some technical problems related to licensing arrangements such as the implementation of an unresolved online single submission (OSS) system, also have the potential to stifle the pace of investment next year.
Despite growing slower, investment in 2019 is said to still potentially grow in the range of five to six percent. Investment in the service sector is predicted to support investment growth next year, including investments related to infrastructure projects. The infrastructure budget in the 2019 state budget, which reaches Rp 420.5 trillion, is greater than this year's budget of Rp 410 trillion, which is expected to hoist the economy to grow more promising next year.
The release of the Central Statistics Agency (BPS) showed the economy grew 5.06 percent, while in the first quarter of 2017 only 5.01 percent. Hopes that the economy will grow even more will increase, after in the following quarter economic growth was even higher at 5.27 percent.
However, in the third quarter economic growth declined to 5.17 percent. If the average economic growth throughout the three quarters is economic growth only 5.17 percent, while in the 2018 State Budget the economy is targeted to grow 5.4 percent. Economic growth throughout 2018 is also expected to be in the range of 5.1-5.2 percent.
For next year, the economy is also predicted to grow at a level that is more or less the same as this year. While the 5.3 percent economic growth target in the 2019 State Budget is considered difficult to achieve given the still high global economic uncertainty.
Government spending can indeed be boosted to grow higher, but two other sources of growth namely investment and exports are predicted to still experience pressure. Meanwhile, household consumption which is the biggest contributor to Gross Domestic Product (GDP) is projected to remain at the level of five percent.
Nevertheless, a number of government policies aimed at encouraging increased income and purchasing power are predicted to maintain the level of public consumption. The policies include plans to increase the salary of the State Civil Service (ASN) and social security premiums for ASN, TNI and POLRI, increase social assistance for the poor, and increase minimum wages.
In addition, next year's democratic party event is expected to also encourage private consumption. The allocation of social assistance spending alone increased by 26.7 percent in the 2019 state budget, after the 2018 state budget increased 42.6 percent.
Although partially, the effect of each of these policies on overall household consumption is not too large, simultaneously it still has the potential to have a significant impetus on household consumption in the next year.
The Executive Director of the Center of Reform on Economics (CORE) Indonesia assessed, even though the economic challenges faced in 2019 were greater, it did not mean the opportunity to encourage higher economic growth was closed. He believes to be able to encourage economic growth amid global pressure, the government needs to look at the problems of the national economy from its roots and be more innovative in finding solutions.
"Not just using instant approaches to decorate economic performance ahead of constellation in the political year alone, at least the government needs to keep the policies issued not to have an impact on decreasing purchasing power and consumption levels, which are the main pillars of the national economy," Faisal said.
Maintaining the price of subsidized fuel in the country will be crucial to prevent the erosion of inflation and weakening purchasing power, especially for the middle to lower classes. In addition, efforts to stabilize the rupiah exchange rate by Bank Indonesia also need to be carried out carefully to maintain the optimism of consumers and business players in the country.
Regarding inflation itself, in the past four years the inflation rate has indeed been relatively low. However, low inflation is not followed by increasing economic growth. Neighboring countries such as Vietnam and Malaysia for example, which when inflation is low, economic growth increases. While Indonesia, although inflation was relatively maintained low at the level of three to four percent, but economic growth was stagnant at the level of five percent.
The low inflation currently occurring is assessed because of the low purchasing power. Low inflation will be able to represent the success of price control if it is in line with the rate of rapid economic growth.
"The problem is that relatively low inflation is currently not accompanied by accelerating economic growth, so the low inflation reflects a low purchasing power," Eko Listyanto, an researcher from the Institute for Development of Economics and Finance (INDEF) said.
In fact, the largest portion of the community's income is spent on food, especially the middle to lower classes. If the government is unable to maintain the stability of food prices, then the implication will be cross-sectoral, namely the demand for non-food products will also be corrected due to weak purchasing power.
Corrected purchasing power will further undermine economic growth. This is because the most dominant growth engine in Indonesia is the consumption of private households.
Economic growth is "trapped" in the figure of five percent, although the injection of government spending continues to be increased, indicating a strong stimulation of the budget
Economic growth is "trapped" at five percent, although the injection of government spending continues to be increased, signaling a weak budgetary stimulation. The effect then began to spread from the increasingly delayed investment execution due to the "wait and see", to the corrected business ease rating.
Meanwhile, for exports, its growth in the next year has the potential to be depressed as global economic growth continues to slow down mainly due to the effects of trade wars between the US and China. The driving force of the global economy towards the domestic economy in 2019 is predicted to be limited.
The International Monetary Fund (IMF) predicts China's economic growth will slow from 6.5 percent this year to 6.2 percent in 2019, the US slows from 2.9 percent to 2.5 percent, while the European Union slows from 2.2 percent to 2 percent. Even the growth of ASEAN countries is predicted to slow down from 5.3 percent to 5.2 percent.
The economic slowdown of the largest trading partner countries has the potential to suppress demand for imports of these countries. At the same time, prices of a number of commodities, including Indonesia's mainstay commodities such as palm oil, coal and rubber, tend to weaken.
Coupled with the policy effects of a number of major export destination countries, such as the US, European Union and India, which still tend to be protective, Indonesia's export growth next year has the potential to continue to be depressed.
Actually, the weakening symptoms of exports, especially to the main market, have been seen since 2018. In the period January to October 2018, non-oil and gas exports to the US only grew 3.7 percent, one-third of growth in the same period last year reached 10.3 percent. Non-oil and gas exports to China are still growing at 22 percent, but this achievement is actually less than half of export growth in the same period in 2017.
The weakening of the rupiah exchange rate does not seem to have much effect on export growth. This is considered reasonable considering that Indonesia's exports are still largely commodity exports which are more affected by prices in the global market.
Meanwhile, manufacturing export growth is even slower, reaching only five percent compared to commodity exports which reached 22 percent during January to October this year.
When export growth is still depressed, the acceleration of imports that occur this year also seems to still be difficult to control next year. Because the two external factors that are the main drivers of the acceleration of imports, namely the weakening of the Rupiah and the increase in world oil prices, still exist in 2019.
In terms of investment, cumulatively up to the third quarter of 2019, gross fixed capital investment (PMTB) is still growing at 6.91 percent, higher than the same period last year which reached 5.75 percent. Unfortunately, investment that in the last few years has grown the highest has begun to show signs of slowing down, especially foreign investment (PMA). Data from the Investment Coordinating Board (BKPM) showed FDI growth in the second and third quarters of this year had contracted by minus 13 percent and minus 20 percent respectively.
In addition to the factor of slowing world economic growth, the momentum of the political year in the country also tends to make business people wait and see. As happened in 2009 and 2014, investment growth generally experienced a slowdown in the election years. Some technical problems related to licensing arrangements such as the implementation of an unresolved online single submission (OSS) system, also have the potential to stifle the pace of investment next year.
Despite growing slower, investment in 2019 is said to still potentially grow in the range of five to six percent. Investment in the service sector is predicted to support investment growth next year, including investments related to infrastructure projects. The infrastructure budget in the 2019 state budget, which reaches Rp 420.5 trillion, is greater than this year's budget of Rp 410 trillion, which is expected to hoist the economy to grow more promising next year.
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