2014-01-05 02:51:46 - New Country Reports market report from Business Monitor International: "Indonesia Business Forecast Report Q1 2014"
Indonesian assets continue to struggle amid a high current account deficit and high domestic inflation. As a result of the hit that rising borrowing costs and inflation will take on investment and private consumption, we expect real GDP growth in 2014 to decline to 5.4%, versus a forecasted 5.7% in 2013. That said, the worst is likely to be over in terms of Indonesia's external position, with policy measures as well as broader macroeconomic trends helping to shore up the current account over the coming quarters.
Despite the Indonesian government's 44.4% petrol fuel price hike in June, we note that this still entails a substantial fiscal contribution towards inefficient subsidies going forward. Indeed, while we view President Susilo Bambang Yudhoyono's administration's
ability to address the unwieldy subsidies as a positive, we continue to stress that more will need to be done by the next administration. With political risks rising ahead of 2014's general elections, however, the continuation of a reformist government is far from guaranteed.
Full Report Details at
- www.fastmr.com/prod/759028_indonesia_business_forecast_report_q1 ..
Indonesia's current account deficit improved slightly to 3.8% of GDP in Q313, versus a record 4.4% previously. With recent measures undertaken by the government and central bank, as well as the weakening rupiah, helping to alleviate Indonesia's external imbalances over the coming quarters, our 2013 and 2014 current account deficit forecasts of -3.4% and -2.8% of GDP respectively, reflect expectations for a continued improvement.
Major Forecast Changes
As expected, Indonesia's August trade surplus was a one-off, with the country's trade account returning to deficit in September. Real GDP growth slowed yet again to 5.6% year-on-year (y-o-y) in Q313 as the triple headwinds of the country's external imbalance, high inflation, and rising borrowing costs hit economic activity. As this slowdown continues to play out, we have downgraded our 2013 real GDP forecast slightly to 5.7% (from 5.8 previously), and maintain our expectations for the rate of expansion to ease further to 5.4% in 2014.
Further interest rate hikes (in addition to its 150bps worth of hikes since June) are not completely outside of the realm of possibility in the coming months, and BI will switch gears to an easing stance only when disinflation comes more firmly into play. Additionally, we have downgraded our end 2013 and 2014 rupiah forecasts to IDR11,700/ US$ and IDR11,500/US$, respectively, reflecting a neutral stance on the currency based on our expectations for the unit to stabilise over the coming months.
Key Risks To Outlook
Indonesia risks a crisis of confidence similar to past panics as hot money outflows continue to batter the country's asset markets. Should sentiment continue to worsen, the government and central bank will need to do more to address the weakening rupiah, as well as the country's current account woes.
2014 elections also pose increasingly imminent risks, as potential candidates (and their prospective policies) remain largely unknown. As the elections approach towards the end of 2014, Indonesia could witness a retrenchment in foreign investor interest.
Partial Table of Contents:
Major Forecast changes
Key risks to outlook
chapter 1: political outlook
BMi political risk ratings
2014 elections in indonesia and india: the Macro View - Two of Asia's emerging market heavyweights - Indonesia and India - are gearing up for general elections in 2014. While it is too early to pick the eventual winners, the respective outcomes will have a huge bearing on the future trajectory of economic growth in both countries. In this article, we flesh out our initial thoughts on possible election scenarios , and what they might mean for both economies over the long term.
TABLE: PoLITICAL ovErvIEW
taBle: Key Presidential candidates
taBle: Key Prime ministerial candidates
Long- term political outlook
outlook improved, But uncertainty Lingers
- Although Indonesia has returned to relative orderliness since the chaos of the late 1990s and early 2000s, the country faces multiple challenges and threats to its stability that could flare up again if President Susilo Bambang Yudhoyono's successor proves incompetent or if improved governance fails to take hold. As such, investors will continue to view Indonesia as one of Asia's riskier destinations.
chapter 2: economic outlook
BMi economic risk ratings
Growth outlook tempered as economy cools
- As expected, Indonesia's August trade surplus was a one-off, with the country's trade account returning to deficit in September. All told, Q313's current account deficit is likely to come in slightly from Q213's record 4.4% of GDP print, but we continue to believe that the improvement in Indonesia's external position will be a gradual one. Meanwhile, real GDP growth slowed yet again to 5.6% year-on-year (y-o-y) in Q313 as the triple headwinds of the country's external imbalance, high inflation, and rising borrowing costs hit economic activity. As this slowdown continues to play out, we have downgraded our 2013 real GDP forecast slightly to 5.7% (from 5.8 previously), and maintain our expectations for the rate of expansion to ease further to 5.4% in 2014.
taBle: economic actiVity
Despite slowing investment story, Fiscal policy to remain prudent
Full Table of Contents is available at:
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