ASEAN KEY DESTINATIONS
Indonesia’s exports at risk due to Chinese growth slowdown
The new Indonesian government is facing a challenge to boost exports and reverse slowing economic growth following another growth downturn in China, the archipelago’s largest trading partner.
“Indonesia’s commodity and energy exports are being affected by the slowdown in China,” Bank Central Asia (BCA) chief economist David Sumual said on Thursday.
Worryingly, David noted, the slowdown in China was occurring at a time when Indonesia’s share of exports there was increasing.
Annual gross domestic product (GDP) growth in China, the world’s second-largest economy, stood at 7.3 percent in the third quarter this year, its slowest rate for five years.
China “faces a deep structural slowdown and broad uncertainty in the decade ahead”, with growth probably settling at 4 percent after 2020, according to the Conference Board, a US-based research group.
China’s GDP grew 7.3% in the third quarter, its slowest rate for five years
RI’s exports to China totaled $11.3 billion during Jan. to Aug.
Shipments to China fell 4.6% in August compared to a month earlier
The International Monetary Fund (IMF) has estimated that every 1 percent deduction of economic growth in China could decelerate Indonesia’s economy by 0.5 percent, mainly because of the strong trade links between the two countries.
“Lower economic growth in China may translate into lower demand for commodities, such as rubber, coal and palm oil, which are the goods that Indonesia exports,” David added.
According to the latest data from the Central Statistics Agency (BPS), Indonesia exported US$11.3 billion of goods to China from January to August this year, 11.7 percent of the archipelago’s total exports, the highest level by any one country.
Indonesia’s shipments to China fell 4.6 percent in August compared to a month earlier, offering the first signal that the slowdown in China was beginning to affect domestic exports.
Newly inaugurated President Joko “Jokowi” Widodo aims to remove infrastructure bottlenecks to spur economic growth to 7 percent, a level that was last reached by the country two decades ago.
Such a growth target could only be achieved if Indonesia altered its growth model and boosted the share of exports and investments in the country’s GDP, which was currently dominated by household consumption, former deputy finance minister Bambang Brodjonegoro said recently.
Household consumption currently accounts for 56 percent of Indonesia’s GDP, while exports account for 23 percent, according to BPS data.
“The 7 percent growth target [set by Jokowi] may not be achieved in the next one or two years because going forward, Indonesia looks set to be facing a challenging global and domestic economic environment,” Agustinus Prasetyantoko, an economist with Atma Jaya Catholic University, said on Thursday.
A slowdown in China, a major player in the global value chain, would have a significant impact on Indonesia’s long-term growth outlook, he noted.
“There needs to be a shift in our policy framework, especially on how to reduce our reliance on exporting primary commodities,” he said.
Bank Indonesia (BI) has expressed its vigilance on the issue, having referred twice to China’s economic downswing in its latest policy statement, which was released after its board of governors’ meeting earlier this month.
The World Bank has also identified the growth slowdown in China as a major global risk that will require monitoring from Indonesian policy makers.
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