Ecsos.Update.Dec.2008.Eng

Half-yearly Indonesia Economic Update and Outlook William E. Wallace Lead Economist, World Bank Indonesia 10 December 2008

Overview ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Overview Commodity prices boom … and bust Int’l financial market turmoil Global economic downturn Impacts domestic economy IDN financial markets 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1 -> Stage 1 ↔ Stage 2 ↔ Stage 3

Approaching the crisis: Economy coming in strong Volatile & weaker Indo. financial mkts Commodity prices boom International financial market turmoil Global economic downturn Impacts domestic real economy 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Lower poverty Share market  Supports currency Real wages  Invest’t  Employ’t  Incomes  Higher poverty Slower decline in poverty Export prices  , terms of trade weaken

[object Object],[object Object],[object Object],Approaching the crisis: The commodity boom supported growth Sources: BPS and World Bank 0 5 10 15 20 25 30 2004 2005 2006 2007 2008* Manufactured Products Mining & Mineral Agriculture & Forestry Oil and Gas %

Approaching the crisis: Growth coming in strong… ,[object Object],[object Object],Sources: BPS and World Bank

Approaching the crisis: …and has been broadly based ,[object Object],[object Object],[object Object],Sources: BPS and World Bank (Year-on-year growth and contributions)

Approaching the crisis: Healthy public finances ,[object Object],[object Object],Sources: Ministry of Finance, IMF, BPS and World Bank

Approaching the crisis: The rise in commodity prices fed inflation Volatile & weaker Indo. financial mkts Commodity prices boom International financial market turmoil Global economic downturn Impacts domestic real economy 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Lower poverty Share market  Supports currency Real wages  Invest’t  Employ’t  Incomes  Higher poverty Slower decline in poverty Export prices  , terms of trade weaken

Approaching the crisis: Inflation, a concern early this year, is waning ,[object Object],[object Object],[object Object],Sources: BPS and World Bank

Approaching the crisis: Inflation, a concern early this year, is waning ,[object Object],[object Object],Sources: BPS, BI and World Bank

Approaching the crisis: With a strong economy, poverty has fallen Volatile & weaker Indo. financial mkts Commodity prices boom International financial market turmoil Global economic downturn Impacts domestic real economy 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Lower poverty Share market  Supports currency Real wages  Invest’t  Employ’t  Incomes  Higher poverty Slower decline in poverty Export prices  , terms of trade weaken

Approaching the crisis: With a strong economy, poverty has fallen ,[object Object],Sources: BPS and World Bank ,[object Object]

The global financial market turmoil Impacting Indonesian financial markets… Commodity prices boom International financial market turmoil Global economic downturn 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Export prices  , terms of trade weaken Lower poverty Supports Indonesia’s real economy IDR weaker Stocks fall Slower fall in poverty Invest’t  Income  Credit tighter Higher inflation Yields on gov’t debt ↑ Supports Indon. financial markets Employ-ment 

[object Object],[object Object],The global financial market turmoil Impacting Indonesian financial markets… Sources: CEIC and World Bank

The global financial market turmoil …especially government debt market ,[object Object],Sources: IDX, CEIC, JP Morgan, World Bank (Indonesian gov’t USD bonds) (Indonesian gov’t IDR bonds)

The global economic downturn Slower global growth will impact Indonesia Higher inflation Commodity prices boom International financial market turmoil Global economic downturn 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Slower fall in poverty Income  IDR weaker Stocks fall Invest’t  Higher inflation Weaker export demand, especially manufactures Lower poverty Supports Indon. financial markets Supports Indonesia’s real economy Employ-ment 

The global economic downturn Sharply lower global GDP growth ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Sources: BPS and World Bank

Impact of the global downturn Sharply lower global commodity prices will lower Indonesia’s terms of trade ,[object Object],[object Object],[object Object],[object Object],Sources: World Bank and BPS

Impact of the downturn Slower growth in Indonesia… ,[object Object],[object Object],Sources: BPS and World Bank

Impact of the downturn …especially in externally-oriented industries ,[object Object],[object Object],[object Object],[object Object],Sources: BPS and World Bank

Impact of the downturn But inflation should continue slowing ,[object Object],[object Object],[object Object],[object Object],[object Object],Sources: BPS and World Bank

Impact of the downturn Slower poverty reduction in 2009 ,[object Object],[object Object],Sources: BPS and World Bank

Indonesia’s pro-active policy response Addressing the immediate crisis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Indonesia’s policy response Positioning for a strong, sustainable recovery ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The global financial & economic turmoil Impacting Indonesian financial markets… Commodity prices boom International financial market turmoil Global economic downturn 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Export prices  , terms of trade weaken Lower poverty Supports Indonesia’s real economy IDR weaker Stocks fall Slower fall in poverty Invest’t  Income  Employ-ment  Credit tighter Higher inflation Yields on gov’t debt ↑ Supports Indon. financial markets

Overview Volatile & weaker Indo. financial mkts Commodity prices boom International financial market turmoil Global economic downturn Impacts domestic real economy 2007 Q3 2008 Q1 2008 Q3 2008 Q4 2009 H1  Commodity prices burst Higher export prices, stronger terms of trade Higher inflation Slower decline in poverty Export prices  , terms of trade weaken Lower poverty Supports Indon. financial markets Supports Indonesia’s real economy

Ecsos.Update.Dec.2008.Eng

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