A Stronger Rebound

INDONESIA - Report 26 Feb 2016 by Cyrillus Harinowo and Maria Kartika Purisari

Encouraging news was reported by The Central Board of Statistics: Indonesian economic growth in Q4 2015 was higher than expected. In Q3 indications of a turning point had emerged but they were not strong enough to ensure a real turnaround. Previously, such a weak turning point later on turned back to negative growth. But the surge in economic growth in Q4 somewhat confirmed the turning point in Q3, and the economy has started to evolve toward a more robust rebound.

The National Account Statistics reported a growth rate for the Indonesian economy of 5.04%, significantly above the 4.73% achieved in Q3 2015. The rate was exactly the same rate of growth as in Q4 of the previous year. The difference was that in Q4 of the previous year, it was achieved within a negative trajectory, while in Q4 2015 it was achieved in a positive trajectory.

The upturn of the economy was accompanied by a larger deficit in the current account. While in Q3 2015 the current account deficit narrowed to around $4 billion or 1.9% of GDP, the deficit for Q4 2015 increased to $5.1 billion or 2.39% of GDP. Overall the current account deficit in 2015 was $17.76 billion or 2.06% of GDP. This was somewhat lower than the deficit of the previous year, which reached $27.5 billion or 3.09% of GDP. However, due to the significantly higher surplus in the capital and financial account, the overall balance of payments reported a surplus of approximately $5,089 million, leading to an increase in foreign exchange reserves to $105.9 Billion.

The larger deficit in the current account was due to the fall in the trade balance, which registered deficits in the final two months of 2015. After the adjustment of the import data to an FOB basis, the trade balance for Q4 2015 was in surplus of $1,952 million, below the surplus of $4,140 Million in Q3.

In the monetary sector, the Consumer Price Indices showed inflation of 0.51% in January 2016, leading to year-on-year inflation of 4.14%. The yearly inflation in January 2016 is within the corridor of the 4 +1% target range of the Central Bank. To help promote economic growth, and given the current inflation as well as external conditions, the Central Bank decided to lower the benchmark rate by 25 basis points to 7% and lower the reserve requirement by 1 percentage point to 6.5%.

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