Tuesday, March 14, 2017

* The process of global economic recovery is still at a steep road and haunted by a variety of challenges such a

Remain Unchanged

*       The process of global economic recovery is still at a steep road and haunted by a variety of challenges such as the economic slowdown in China, the impact of Brexit, tightening of US monetary policy, the impact of Trump policy, and geopolitical problems that occur in some countries in the world. As a result, prospects across the main countries and regions remain uneven in this year. China's economy growth slightly improved to 6.8% y-o-y in 4Q 2016, compare from 6.7% y-o-y in the previous quarter. Meanwhile, the China’s Purchasing Manager Index (PMI) indicator slightly increased to 51.6 in February 2017 compare with 51.3 in the previous month. The China’s Industrial Production Index was slowing growth at 6.0% y-o-y in December 2016, compare with 6.2% y-o-y in one month earlier. The China’s exports growth fell by 1.3% y-o-y in February 2017. EU economy growth slowed to 1.7% y-o-y in 4Q 2016, compare 1.8% in the previous quarter. European PMI indicator increased to 55.4 in February 2017 from 55.2 in one month earlier. European Industrial Production Index growth slowed to 1.8% y-o-y in December 2016, compare 3.0% y-o-y in the previous month. Meanwhile, Japanese economy growth improved to 1.6% y-o-y in 4Q 2016, compare with 1.1% y-o-y in the previous quarter. In the other hand, Japanese PMI indicator increased from 52.7 in January 2017 to 53.3 in February 2017.  Japan industrial production index was slowing growth to 1.5% y-o-y in January 2017 compare 4.9% y-o-y in December 2016.  Meanwhile, the US economy improved growth to 1.9% y-o-y in 4Q 2016, compare 1.7% y-o-y in the previous quarter. The US PMI increased to 57.7 in February 2017 compare 56.0 in one month earlier. The US industrial production index was slowing growth to 0.0% y-o-y in January 2017 from 0.7 % y-o-y in December 2016.

*       On the domestic side, we expect Indonesian economy to growth around 5.06% in 1Q 2017 slightly improve compare 4.94% in 4Q 2016. It’s supported by improvement in export performance due to higher commodity prices. Household consumption is expected to remain solid, supported by the improvement in sales of durable goods such as automotive, electronics, and property. Implementation of the local elections simultaneously has an impact on increasing household consumption and non-profit institutions. Meanwhile, government spending is expected to remain slow in line with the budget efficiency. Investment is expected to moderate growth in the early quarter of this year. Going forward, we also expect the Indonesia’s economy will grow 5.10% in 2017 slightly improve compare with 5.02% in 2016.

*       Indonesia's trade balance recorded a surplus US$ 1.40 billion in January 2017, increased from a surplus US$ 1.05 billion in December 2016. The widening of trade surplus is due to the decrease in imports faster than exports. Indonesia’s exports in January 2017 stood at USD 13,384.8 million fell by 3.2% m-o-m. On yearly basis, Indonesia’s exports increased by 27.71% y-o-y (the highest in the last five years). On the other hand, the total imports in January 2017 reached to USD 11,989.0 million, fell by 6.2% m-o-m. On yearly basis, Indonesia’s imports increased by 14.54% y-o-y. Meanwhile, Indonesia’s current account deficit recorded -0.75% per GDP in 4Q 2016, better from -1.92% per GDP in 3Q 2016. Current account deficit narrowed in 4Q 2016, mainly driven by the growing trade surplus and declining services and primary income. Meanwhile, we expect Indonesia's current account deficit will be reached approximately -1.95% per GDP in 2017, widening from -1.75% per GDP in 2016 due to domestic economic recovery leads to increased imports, at the same time export performance is still depend on the prices of commodity and  the recovery of global demand.

*       Yearly inflation rose to 3.83% y-o-y in February 2017, compared with 3.49% y-o-y in the previous month. Meanwhile, consumer price index slowed to 0.23% m-o-m in February 2017 from 0.97% m-o-m in the preceding month. Furthermore, the monthly inflation in February 2017 mainly comes from higher prices of electricity tariff, the mobile phone tariff, housing rent, gasoline (non-subsidized), car, and gold jewelry. Looking ahead, we expect yearly inflation will reach 4.28% in 2017 increase compare 3.02% in 2016. The increase in inflation this year due to the increase in administered tariffs such as electricity rates, vehicle registration fee, and the price of non-subsidized fuel. On the other hand, food prices are still fluctuating in this year

*       Rupiah relatively stable at around 13400 in February 2017 compared to the previous month. Meanwhile, foreign outflows occurred on Indonesia stock market. Foreigners booked net-sell of USD 60.3 million in February 2017. On other side, from latest data showed foreigner booked net buy in bond market during the month of February 2017 by adding IDR 6.4 trillion. Furthermore, Indonesia's foreign reserves in February 2016 rose to US$119.9 billion, compare from US$ 116.9 billion in the previous month. The increase was primarily attributable to foreign exchange receipts, among other from tax revenues and government oil & gas export proceeds, withdrawal of government foreign loans, as well as auction of Bank Indonesia foreign exchange bills. The receipts surpassed the use of foreign exchange for repayments of government external debt and Bank Indonesia foreign exchange bills matured during the period.

*       Indonesia’s money supply (M2) growth in January 2017 slightly slowed. M2 position in January 2017 stood at Rp 4,938.7 tn, or grew 9.8% y-o-y, lower than 10.0% y-o-y in the previous month. By component, slowing M2 growth derived from lower growth component of M1 to 14.1% in January 2017 from 17.3% y-o-y in the previous month, as well as the component securities other than shares fell by 8.5% y-o-y in January 2017 compare grew by 0.9% y-o-y in the previous month. Meanwhile, bank loan grew 8.2% y-o-y in January 2017, higher from 7.9% y-o-y in December 2016. Meanwhile, the growth of third party funds slightly improved to 9.7% y-o-y in January 2017 compare with 9.6% y-o-y in the previous month.

*       Based on the above factors and to maintain the balance of Indonesia's macroeconomic stability and the recovery of the domestic economy, we expect Bank Indonesia remains unchanged the policy rates in this month. We expect the BI 7-day reverse repo rate is maintained at 4.75%, the deposit facility rate at 4.00%, and the lending facility rate at 5.50% on the Board of Governors Meeting March 15-16th, 2017.

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