MARKET DEVELOPMENT
Standard Chartered Cautiously Optimistic Over RI’s Growth
Standard Chartered Cautiously Optimistic Over RI’s Growth
27/01/2015 (Jakarta Post) - Standard Chartered Bank says that it is cautiously optimistic over Indonesia’s growth in 2015, citing improvements in the current account and the latest global developments triggered by European Central Bank’s (ECB) stimulus program.
During the 2015 Global Research Briefing held on Monday, the bank laid out its 2015 growth projection at 5.2 percent this year, up from the expected 5.1 percent.
Standard Chartered Bank Indonesia chief economist Fauzi Ichsan attributed the projection to the country’s latest energy reform that is expected to improve its current account deficit (CAD).
“We believe that the deficit will decline to around US$20 billion by year-end from $25 billion last year, driven by lower imports of fuel. That deficit figure will be less than 5 percent of the GDP [gross domestic product],” he said.
By removing fuel subsidies, Indonesia has basically resolved its “big macroeconomics” issue, according to Fauzi.
“What’s left are issues that are micro in their nature, such as execution of projects and tax reforms. It will be reforms in real sectors that matter most in the next three to four years,” he added.
Finance Minister Bambang Brodjonegoro, who attended the briefing, said that the new energy policy had created more fiscal space for the government.
It recently slashed subsidies for fuel and liquefied petroleum gas to Rp 81.81 trillion (US$6.54 billion) in the 2015 revised state budget, down from the previous Rp 276.01 trillion stated in the original budget.
“Of the funds saved, we plan on using Rp 155 trillion for various infrastructure and social protection projects. This will be the first time that the infrastructure budget receives more funding than the energy budget,” Bambang said.
However, Fauzi said that other commodities loomed over the CAD improvement.
As a commodity exporter, Indonesia relies heavily on natural resources such as coal, crude palm oil (CPO) and rubber. Commodities make up for 60 percent of the total exports.
Their prices remain under pressure, especially following the decline of oil prices. “Should they remain soft or decline further, addressing CAD will still be challenging. Indonesia has about six to nine months to shrink the CAD before the US raises its rate,” he said.
In terms of inflation, Standard Chartered believes that the inflation rate will revolve at 4.5 percent, well within the range set by the government.
However, it says that there is still a possibility that Bank Indonesia (BI) would jack up its benchmark interest rate in the second half of the year, up by about 50 basis points (bps) to 8.25 percent.
The 50 bps prediction is in line with the Standard Chartered’s estimate on the Federal Reserve’s planned rate increase — expected at about 50 bps as well — around September.
It believes that if the Fed decides to raise its rate, the latter will do it in a subtle manner, according to Standard Chartered Asia macro research head David Mann.
“That can be something to watch for, but it will not be too strong. It will be the most dovish hiking cycle in the Fed’s history, but anticipation of that hike is what we worry about in markets,” Mann said.
However, he acknowledged that the market and global economy would be offset somewhat by the upcoming stimulus program by the ECB, saying that “what the Fed takes away, the ECB can give back.”
During the 2015 Global Research Briefing held on Monday, the bank laid out its 2015 growth projection at 5.2 percent this year, up from the expected 5.1 percent.
Standard Chartered Bank Indonesia chief economist Fauzi Ichsan attributed the projection to the country’s latest energy reform that is expected to improve its current account deficit (CAD).
“We believe that the deficit will decline to around US$20 billion by year-end from $25 billion last year, driven by lower imports of fuel. That deficit figure will be less than 5 percent of the GDP [gross domestic product],” he said.
By removing fuel subsidies, Indonesia has basically resolved its “big macroeconomics” issue, according to Fauzi.
“What’s left are issues that are micro in their nature, such as execution of projects and tax reforms. It will be reforms in real sectors that matter most in the next three to four years,” he added.
Finance Minister Bambang Brodjonegoro, who attended the briefing, said that the new energy policy had created more fiscal space for the government.
It recently slashed subsidies for fuel and liquefied petroleum gas to Rp 81.81 trillion (US$6.54 billion) in the 2015 revised state budget, down from the previous Rp 276.01 trillion stated in the original budget.
“Of the funds saved, we plan on using Rp 155 trillion for various infrastructure and social protection projects. This will be the first time that the infrastructure budget receives more funding than the energy budget,” Bambang said.
However, Fauzi said that other commodities loomed over the CAD improvement.
As a commodity exporter, Indonesia relies heavily on natural resources such as coal, crude palm oil (CPO) and rubber. Commodities make up for 60 percent of the total exports.
Their prices remain under pressure, especially following the decline of oil prices. “Should they remain soft or decline further, addressing CAD will still be challenging. Indonesia has about six to nine months to shrink the CAD before the US raises its rate,” he said.
In terms of inflation, Standard Chartered believes that the inflation rate will revolve at 4.5 percent, well within the range set by the government.
However, it says that there is still a possibility that Bank Indonesia (BI) would jack up its benchmark interest rate in the second half of the year, up by about 50 basis points (bps) to 8.25 percent.
The 50 bps prediction is in line with the Standard Chartered’s estimate on the Federal Reserve’s planned rate increase — expected at about 50 bps as well — around September.
It believes that if the Fed decides to raise its rate, the latter will do it in a subtle manner, according to Standard Chartered Asia macro research head David Mann.
“That can be something to watch for, but it will not be too strong. It will be the most dovish hiking cycle in the Fed’s history, but anticipation of that hike is what we worry about in markets,” Mann said.
However, he acknowledged that the market and global economy would be offset somewhat by the upcoming stimulus program by the ECB, saying that “what the Fed takes away, the ECB can give back.”