Growth is Gaining Momentum
The Central Board of Statistics recently released the National Account Statistics for the second quarter of 2016, which reported an accelerated rate of economic growth. This latest performance exceeded general expectations, including those of the Central Bank. The growth performance was very much in line with the performance of many companies. Unilever Indonesia, for instance, reported sales growth of 10.3% in the first semester, while in Q1 the company reported growth of 6.2%. This means that in the second quarter, Unilever Indonesia reported sales growth of 16.2%. Similarly, automobiles sales also showed an up-trending curve.
In the May 2016 Report, I intentionally put a sentence from the CBS statement that “the Central Board of Statistics emphasized that the rate of growth in Q1 of 2016 was higher than Q1 of 2015, even though it was lower than the growth in Q4 of 2015.” That statement indicated that the economy was still on an upward trend. Apparently that statement was correct in looking ahead to the prospects for economic growth in Q2 2016.
The higher-than-expected growth was accompanied by a lower deficit in the current account. In Q1 2016, the current account deficit was $4,762.32 million or 2.19% of GDP, while the deficit in Q2 2016 narrowed to $4.678.66 million or 2.02% of GDP. The smaller current account deficit, together with a significantly higher surplus in the financial account resulted in a relatively large surplus in the overall balance of payments, increasing foreign exchange reserves to $109.8 billion from $107.5 billion at the end of March 2016.
The smaller deficit in the current account was due to the better trade balance, which showed surpluses for three months in a row in Q2 2016. After the adjustment of import data to a free-on-board basis, the trade balance for Q2 2016 was in surplus of $3,717.56 million, above the surplus of $2,708.60 million reported in the previous quarter.
The CBS also reported the trade balance for July 2016, which showed another surplus of $598.3 million, significantly below that of the previous month, which reached $879.2 million. However, the decline did not reflect anything significant because the month of July had a lower number of working days due to the Muslim holidays, which led to closures of business activities, including port activities. Exports for the month fell significantly, to $9,514.3 million, while imports also declined, to $8,916.0 million.
In the monetary sector, the Consumer Price Index registered inflation of 0.69% in July, leading year-on-year inflation to 3.21%, a level at the lower end of the target corridor of Bank Indonesia. Year-to-date inflation was 1.76%, relatively low for the year. Meanwhile, year-on-year core inflation stood at 3.49%. Given the benign inflation and external data, Bank Indonesia decided to keep the new benchmark interest rate, which is the seven-day reverse repo rate, constant at 5.25%.
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