ASEAN KEY DESTINATIONS
UBS projects flat GDP growth this year
Indonesia:The country’s gross domestic product (GDP) growth will stay at 4.7 percent this year amid sluggish industrial activity, according to a projection by Switzerland-based investment bank UBS.
Senior UBS economist Edward Teather said consumption and investment in the country would increase but industrial activity would be sluggish, as imports of intermediate goods would be weak.
“As such, GDP will grow modestly at 4.7 percent this year,” Teather said during a media briefing in Central Jakarta on Monday.
The country’s GDP expanded by 4.79 percent last year, the slowest since the 2009 global financial crisis and lower than the 5.02 percent achieved in 2014. The government is aiming for 5.3 percent growth this year, as outlined in the 2016 state budget.
Teather wrote in his research note that exports and imports correlated because of the trade in intermediate goods, adding, however, that policy stimuli could lead imports to diverge from export growth.
“Relaxed monetary conditions can boost demand for import,” he said, adding that according to his research, lower interest rates would boost loans and eventually strengthen imports against exports.
An interest rate cut would support domestic demand, as well as providing room for import growth and higher GDP, Teather said.
Data from the Central Statistics Agency (BPS) reveal that the country’s total imports plunged by 19.9 percent year-on-year (yoy) to US$142.74 billion last year while exports declined by 14.62 percent to $150.25 billion, creating a trade surplus of $7.51 billion.
Bank Indonesia reduced its key rate by 25 basis points (bps) to 7 percent following a similar rate cut in January, indicating that it would continue to ease its monetary policy, with more benchmark interest rate cuts to stoke economic growth.
Meanwhile, for the stock market prospects this year, UBS head of Indonesian equities and research Joshua Tanja said he expected the Jakarta Composite Index (JCI), the benchmark of the Indonesia Stock Exchange (IDX), to reach earnings growth of 12 percent.
The growth, he said, would be driven by higher revenues and lower expenses among listed companies.
“We overweight banks, property, retail, media and infrastructure stocks,” said Joshua, who is also UBS country director for Indonesia.
IDX data showed that the index had gained 5.19 percent as of Friday and recorded foreign net buy of Rp 4.29 trillion ($327.86 million). Shares of consumer goods firms are outperforming other sectors, with 14.04 percent growth so far this year.
Joshua said recent deregulation, capital inflow from China and Japan into infrastructure projects and tax amnesty initiatives were key positives for the equity market.
Teather added that given the massive flow of capital into the country, the government should not worry about a sudden reversal, as long as it could maintain economic stability and the budget deficit.
Events in China and Japan will not immediately affect the flow of investment from those countries, he said.
“For example, if the Chinese economy continues to slow, perhaps that will increase the willingness of Chinese investors and companies to invest in areas outside China,” he said.
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