Maintain Neutral
Global economic activity has strengthened at a moderate level. The IMF expected the global economic growth for 2018 and 2019 reached 3.9%, improving from 3.7% in 2017 estimation. Meanwhile, China's economy maintained growth at 6.8% y-o-y in 4Q 2017, stable compare with the previous quarter. The China’s Purchasing Manager Index (PMI) manufacturing indicator increased to 51.5 in March 2018 compare 50.3 in the previous month. The China’s Industrial Production Index growth improved to 7.2% y-o-y in February 2018, compare 6.6% y-o-y in one month earlier. The China’s export was improving growth to 44.5% y-o-y in February 2018 from 11.2% y-o-y in the previous month. Meantime, EU economy growth slowed to 2.7% y-o-y in 4Q 2017 stable compare from the previous quarter. European PMI Manufacturing indicator decreased to 56.6 in March 2018 from 58.6 in one month earlier. European Industrial Production Index growth slowed to 3.4% y-o-y in January 2018, compare 5.1% y-o-y in the previous month. Meanwhile, Japanese economy growth improved to 2.0% y-o-y in 4Q 2017, compare with 1.9% y-o-y in the previous quarter. In the other hand, Japanese PMI Manufacturing indicator decreased from 54.1 in February 2018 to 53.1 in March 2018. Japan industrial production index was improving growth to 1.7% y-o-y in February 2018 compare 0.8% y-o-y in previous month. Meantime, the US economy was improving growth to 2.6% y-o-y in 4Q 2017, compare 2.3% y-o-y in the previous quarter. US unemployment rate in March 2018 was maintained at to 4.1%, unchanged compare with the previous month. Meanwhile, the US Purchasing Manager Index (PMI) decreased to 59.3 in March 2018 compare 60.8 in one month earlier. The US industrial production index was improving growth to 4.3% y-o-y in February 2018 from 2.9 % y-o-y in previous month.
On the domestic side, we expect Indonesia’s economic in 1Q 2018 grow 5.13% y-o-y, slightly lower than 5.19% y-o-y in 4Q 2018. The main factor driving economic growth is the increasing government spending and creeping up private consumption. The increase in Government expenditure comes primarily from accelerating the completion of infrastructure projects, spending preparations for simultaneous regional head elections, and accelerated village fund expenditure along with cash labor intensive programs. While the creeping up private consumption is mainly supported by the increase in people's purchasing power due to high commodity prices and spending on simultaneous regional head election campaigns. Furthermore, regarding with the global economic recovery will maintain exports in positive growth. In line with the increase in export and domestic economic recovery, we estimate that imports have also increased. Going forward, we expect Indonesia’s economic grow 5.30% y-o-y in 2018, improving from 5.07% in 2017.
Indonesia's trade balance recorded a deficit US$ 0.12 billion in February 2018, narrowing from a deficit US$ 0.76 billion in January 2018. The decline in trade deficit was due to the decrease in imports faster than exports. Indonesia’s exports in February 2018 stood at USD 14.10 billion fell by 3.14% m-o-m. On yearly basis, Indonesia’s exports increased by 11.76% y-o-y. On the other hand, the total imports in February 2018 reached to USD 14.21 billion, fell by 7.16% m-o-m. On yearly basis, Indonesia’s imports increased by 25.18% y-o-y. Meanwhile, Indonesia’s current account deficit in 2017 reached 1.70% per GDP, slightly improved from 1.82% per GDP in 2016. Forward looking, we expect Indonesia's current account deficit will be reached approximately -2.20% per GDP in 2018, widening from -1.70% per GDP in 2017. It’s caused by 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 increased to 3.40% y-o-y in March 2018, compared with 3.18% y-o-y in the previous month. Furthermore, consumer price index reached by 0.20% m-o-m in March 2018, increased compare from 0.17% m-o-m in the preceding month. Meanwhile, the monthly inflation in March 2018 mainly comes from higher prices of foodstuffs, cigarette, gold jewelry, and gasoline. Looking ahead, we expect yearly inflation will reach 3.50% in 2018 slightly decrease compare 3.61% in 2016. The easing inflation rate projection in 2018 due to the government does not raise the energy prices in 2018 and continue to keep food prices.
The rupiah still weakened 0.36% m-o-m to 13756 in March 2018. Furthermore, to date the Rupiah is relatively stable at around 13750/USD. Meanwhile, foreign outflow occurred on Indonesia stock market. Foreigners booked net-sell of USD 1085.1 million in March 2018. On other side, foreigner booked net buy in bond market during the month of March 2018 by adding IDR 10.6 trillion. Furthermore, Indonesia's foreign reserves in March 2018 fell to US$126.00 billion, compare from US$ 128.06 billion in the previous month. The decrease was mainly due to the use of foreign exchange to repay government external debt and stabilize rupiah amidst increasing global financial market uncertainty. Going forward, Bank Indonesia considers the official reserve assets remain adequate in line with preserved confidence in the upbeat outlook for the domestic economy and positive export performance.
Indonesia’s money supply (M2) growth in February 2018 slowed. M2 position in February 2018 stood at Rp 5,35123tn, or grew 8.3% y-o-y, slightly lower than 8.4% y-o-y in the previous month. Based on its components, M2 growth decreased from quasi money component which grew by 6.7% y-o-y, down from 7.4% y-o-y in the previous month. Based on the factors that influence, M2 growth slowdown is influenced by the slowing of net foreign asset. Meanwhile, bank loan grew 8.2% y-o-y in February 2018, higher from 7.4% y-o-y in January 2018. However, the growth of third party funds slowed to 8.2% y-o-y in February 2018 compare with 8.4% y-o-y in the previous month.
Based on the above factors and to maintain the balance of Indonesia's macroeconomic stability and the momentum of domestic economy recovery, we expect Bank Indonesia to maintain a neutral monetary policy in this month. We expect the BI 7-day reverse repo rate is maintained at 4.25%, the deposit facility rate at 3.50%, and the lending facility rate at 5.00% on the Board of Governors Meeting April 18th-19th, 2018.
Regards,
Juniman
Chief Economist
PT Bank Maybank Indonesia Tbk
Sentral Senayan III, 8th Floor
Jl. Asia Afrika No. 8, Gelora Bung Karno
Jakarta 10270, Indonesia
Tel : +62 21 29228888 Ext.29682
Fax : +62 21 29228849
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