Marching Ahead Against

External Hurdles
Photo credit: unsplash.com/@marcogiuseppetimelli

BCA Macroeconomic and

Industry Research INDONESIA MACROECONOMIC OUTLOOK
 Executive Summary 3

Chapter 1 – Introduction 4
“A surprisingly Smooth Sailing in 2023”

Chapter 2 – Of Rates and Policies 10

“Waiting for the Monsoon Wind”

Table of Chapter 3 – Domestic Consumption

“Refuel and Reload After a Long Cruise”
26

Contents Chapter 4 – Trade and Investments 37

“Going Full Speed Amidst the Doldrums”

Chapter 5 – Towards 2024 51

“A Brisk Walk in a Dark Alley”

Table of Macroeconomic Projections 57

Credits and disclaimer 58
 Indonesia’s economic growth momentum would increasingly rely on domestic
GDP factors as the global demand is expected to weaken in 2024. Higher fiscal spending
amid the election period may fuel the economy towards another 5% YoY GDP
growth in 2024, but concerns on whether the fiscal spree would last throughout the
year means that the GDP growth number in 2024 may be a touch slower than in the
previous year.

Executive Rate
Relatively stable domestic inflation and the receding pressure on Indonesia’s financial
market may encourage Bank Indonesia to pursue a looser policy stance in 2024.
Summary However, the still-volatile global interest rate expectation may continue to put the
central bank on high alert, as BI is expected to lower the BI7dRR by 50-75 bps in
2024 depending on how the Fed would follow through on its dovish signals.

Indonesia may retain its trade surplus, given the prospect of still-elevated commodity
CA prices in 2024. However, the relatively robust domestic aggregate demand growth
and the continued strength of investment growth may hold Indonesia’s current
account balance at a narrow 0.5% GDP deficit in the upcoming year.
 #1: Introduction
“A surprisingly smooth sailing in 2023”

The global and domestic economy confounded gloomy expectations in 2023 – even the
commodity headwinds are unlikely to push Indonesia’s GDP growth below its usual 5%-plus pace.
But despite still-strong domestic demand, the global situation is sufficiently unpredictable that
the outlook for 2024 remains far from certain.
 The global economy is not in its best shape in 2023, but things
are better than first expected
FY 2023 Annual GDP forecast, median of private forecasters (%)
 To discuss the Indonesian economic outlook for 2024, it is
6 % 3 % necessary to first look at the global situation in 2023. The
prevailing fear entering the year was either stagflation or
2.4 – if inflation were to be overcome – that global demand
would collapse. But as it turned out, the situation was far
5.2 2
better than expected: inflation decline, but without
5 5.0 1.7
significant decline in global growth.
4.8 4.8  This cannot be separated from three main interventions:
1 1.2 (i) rate hikes by the Fed and other central banks; (ii)
0.5
release of oil from the US’ strategic petroleum reserves
4 4.0 (SPR); and (iii) the re-opening of China’s economy.
China 0
 All these are themes that we explore more deeply in our
Indonesia European Union Global Outlook, but as far as Indonesia is concerned, the
ASEAN median United States impact is rather mixed. For instance, the extra supply –
Developed Asia particularly from China’s excess industrial output – helps
3 -1
Mar '21 Jul '22 Nov '23 Mar '21 Jul '22 Nov '23 suppress inflation and thereby facilitate consumption.
 On the other hand, the Fed’s tightening have had destabil-
Chart 1.1-1.2 The dreaded “winter of discontent” never arrived for the global ising effect on the Rupiah’s exchange rate, while China’s
economy as supply conditions improved in 2023, but growth in China and reopening failed to incite a rally in the global commodity
especially Europe is set to plateau at lower levels than before markets, with detrimental effect on our exports.
Source: Bloomberg
5
 China’s dimming light poses problems for some economies
more than the others
-0.6 -0.4 -0.2 % 0.0
0.0  The risk of slowing growth in China spells
Average %
effect Impact of 1% drop in China’s trouble for the Indonesian economy in several
Chart 1.3 China’s slowing growth
on GDP GDP (relative to the baseline) inter-connected ways. First, it worsens
outlook may put Asian economies to other countries’ GDP
at a disadvantage relative to more perception on Asian economies and thereby
Sino-insulated Western economies depresses Asian currencies, accentuating the
impact of the USD’s recent rise.
European Union
-0.3
 Secondly, China’s excess output – coupled
Asia Other South Asia with weaker CNY – are toxic for domestic
Singapore Canada India
Outside Asia Thailand
manu-facturers, which faces a ‘race-to-the-
Vietnam United States
bottom’ dynamic against their Chinese
Rest of the world competitors. Thirdly and finally, as mentioned,
Developing Asia
Latin America (excl. China) it also has negative effect on commodity
Average effect
South Korea on exports
prices, given China’s outsized role as a global
Malaysia Other SEA
-0.6 manufacturing hub.
Hong Kong Japan
Indonesia
 Fortunately for Indonesia, while the situation
is clearly unfavourable for exporters, the
Taipei Philippines
Australia and New impact on GDP growth is cushioned by
Zealand
Impact of 1% drop in China’s Indonesia’s relatively limited dependence on
GDP (relative to the baseline) exports. As was often the case during prior
to other countries exports global crises, it is Indonesia’s huge internal
(Exports as % of GDP) -0.9 market that comes to the rescue.
Source: Zhai and Morgan, Impact of the People's Republic of China's Growth Slowdown on
Emerging Asia: A General Equilibrium Analysis (March 25, 2016). ADBI Working Paper 560
6
 Indonesia increasingly relies on its internal market to keep the
growth momentum alive
8 %  The general downturn in commodity prices has
under-cut Indonesia’s terms of trade – although
its impact on real growth is much less dramatic as
5.46 export volumes to China has remained quite
5.06 4.94
robust. Still, it is quite evident that Indonesia can
4 no longer rely on exports to propel its growth to
3.53

2.81
the same extent as in 2021-22.
2.77

2.35
3.19
 Fortunately, domestic demand is more than

2.63
2.77
2.78

2.78

2.71

2.44
ready to take the baton. While household
consumption slowed in the wake of fuel price
0
-1.97 hike in Sep-22, it has picked up significantly by
mid-23. This was greatly facilitated by stabilising
-2.96

prices, along with the global disinflation trend

▬ Real GDP growth (YoY),
Chart 1.4 Indonesia has contributions from: and in particular the influx of imported consumer
been increasingly reliant on Others goods from China.
-4 domestic consumption and
Household consumption  Fixed-asset investment have also seen notable
investment growth in the
-5.32 Government expenditures revival, contributing to GDP growth at nearly the
last two quarters
Fixed-asset investments same extent as the “peak Jokowinomics” years in
Source: BPS Net exports 2017-18. The export decline, it seems, had not
dim the appetite to invest. And then, of course.
-8
there is the matter of government spending.
Q1-2018 Q1-2019 Q1-2020 Q1-2021 Q1-2022 Q1-2023

7
 Fiscal policy has served as a brake for most of 2023, but things
may be changing
120 % 120 %
115.9 114.1 Chart 1.5-1.6 The
Government Government expenses, government enjoyed
102.5 actual disbursement 99.2
revenue, actual strong revenue growth
(% of target)*
uptake 84.9 90.4 93.9 through 2022 and early
(% of target)* 2022
80 80 2023, but government
71.7
2018 spending was relatively
lagging, except for the tail
2019
49.1 end of 2022
2022 2019
2023 53.6 Source: Indonesia MoF
40 40
2018

*Based on LKPP data, 2023 2023 *Based on LKPP data, 2023

data using Aug-23 outlook data using Aug-23 outlook

0 0
January October January October

 Indonesia’s relatively robust domestic demand is even more remarkable given the government’s relatively restrictive fiscal posture thus far in
2023. Supernormal profits due to high commodity prices in 2022 has lead to a windfall in tax revenues up until early 2023, while the same is
not observable on the spending side. This cautious stance is a continuation of 2022, when the government managed to exit the extraordinary
pandemic-era deficit spending one year earlier than expected.
 This situation, however, may soon change. Despite its negative contribution to the Q3 2023 GDP growth number, the government has signalled
its intention to attain its deficit target in 2023, which translates to massive fiscal disbursement to the tune of almost 1.6% of GDP in the last two
months of the year. This spending is further spurred by the upcoming Elections and the spectre of rising food prices.
8
 External pressures make it hard for BI to turn its focus away
from stability
1.20% 0.5%  Just like the fiscal authorities, Bank Indonesia has
Chart 1.7 The October rate hike maintained relatively short leash on the economy in
BI’s first post-
pandemic rate calmed the domestic DNDF
2023, but not for lack of trying. BI actually concluded its
hike: Aug- market, but investors continue
2022 rate hike cycle earlier than other central banks, in Jan-23
BI’s first
to seek higher yields from SBN
50bps rate 0.4% – and the situation actually supported its decision at that
hike: Sep- time. In particular, Indonesia’s wide real rate differentials
2023 0.84%
vis-à-vis the US provided a strong incentive for foreign
0.80% money to flow in.
0.3%  Alas, the vicissitude in investors’ behaviour hit the
domestic market hard during Q3-23, leading to
0.63%
continuous outflows and relentless pressure on the IDR.
This prompted BI to react, first relying mostly on direct
0.20%
0.2%
interventions in the FX market. But this strategy proved
costly to BI’s reserves, forcing it to make a somewhat-
0.40%
unexpected 25 bps hike in October.
0.15%
 This did not quite quell market sentiment, but fate
Bid-ask percentage spread: 0.1% intervened in Indonesia’s favour late in the year. Another
Post-pandemic
10Y SBN bid-ask spread dovish shift in the market’s perception Fed’s policy
tightening percentage outlook calmed the IDR and Indonesian bond market,
campaign ended: Rupiah 1M NDF bid-ask spread Oct-2023
Jan-2023 rate hike allowing BI to keep its policy rate at the current 6.00%
percentage (rhs)
0.00% 0.0%
level. We move our discussion, then, by pondering if this
Jun-22 Sep-22 Dec-22 Apr-23 Jul-23 Nov-23 state of affairs would continue in 2024.
9 Source: Bloomberg. Data per 15 Dec 2023
#2: Of Rates and Policies
“Waiting for the monsoon wind”
Despite its promising start, the still-volatile global expectations highlight the challenge facing the
Indonesian financial market throughout 2023. As was the case at the beginning of 2023, the relatively
calm domestic financial market conditions currently may prompt the central bank to start pondering a
way to loosen the policy condition. The central bank’s mandate to keep the Rupiah stable may
continue to keep BI on high alert, given the still wide divergence in the global rate expectation.
 Unfavourable regional situation compound the Rupiah’s
challenge in 2024
200 Changes in 10Y  The high rates and volatile USD in 2023 seems to be the
sovereign bond yield
(YTD*, bps) crux of every central banker’s problem. For BI, however, the
Saudi Arabia un-favourable state of its regional neighbours has added to
the challenge of maintaining the Rupiah’s stability.
100
South Africa
 As we know, central bankers in Asia ended their tightening
Chile campaign sooner than their Western counterparts, and this
divergence has put Asian currencies at a distinct disadvan-
New Zealand US (DXY) UK
Mexico tage. This less hawkish posture by Asian central banks is
Japan Australia
0 Canada explicable by the relatively manageable inflation, thanks in
Thailand
Philippines Sweden
EU part to the supply overhang in China.
China
South Korea
Malaysia Singapore  But there are also concerns over the economic health of
Indonesia Swiss
Asian economic powerhouses, i.e. China and Japan, which
-100 Chart 2.1 The widening policy
gap between Asian central forces their central banks to adopt more dovish policies
banks and the Fed heightened Czech Republic and triggers a run on their currencies as well as their
Poland
the impact of Fed rate hikes neighbours’.
on Asian currencies, although
the Rupiah has performed  Comparatively, then, Indonesia is doing better than its
-200 Brazil
better relative to its Asian Asian counterparts throughout 2023 in terms of both
peers exchange rate and sovereign bond yields. Indeed, it is
Source: Bloomberg. data per 15 Dec 2023
possible to look at the Rupiah as being overly strong
Changes in exchange against its regional trade partners, which may take a toll on
Hungary
-300 Vietnam rate (YTD*, %) its current account (CA).
-10 -5 0 5 10 15
11
 The Rupiah can no longer rely on CA surplus to protect itself
from external pressures
20 USD Bn 5.0%  High rates and strong USD was already a problem since 2022 –
if anything, the Dollar index attained its post-GFC high (114.1)
Chart 2.2 Export revenues are still in Sep-22 rather than 2023 (106.9 in Oct-23). In 2022,
relatively strong, but no longer sufficient
however, the ongoing commodity supercycle offered support
to offset Indonesia’s structural deficits in
to the Rupiah, with the extra FX earnings bolstering BI’s
the services and income accounts
10 2.5% reserves.
1.7%  But the supernormal commodity profits in 2022 softened to
just normal profits, while the lasting vigour of Indonesia’s
domestic demand also continues to translate to robust
imports. The lower trade surplus means that Indonesia now
0 0.0% suffers from CA deficit, as it usually did before the pandemic –
-0.2%
this despite the government's strenuous efforts to extract
more FX liquidity from exporters.
 The hangover from the commodity supercycle of yesteryear
also added another dent to Indonesia's FX coffers. The
-10 -2.5% commodity boom translated to supernormal dividend
Goods account payments, which tipped Indonesia's CA balance to a deficit in
Services Account Q2-23. The big dividend payments may well be a one-off
-3.7% seasonal impact – but still, given the structural deficits in
Income account
other accounts, the Indonesian economy may continue to
-20 Current Account, % of GDP (rhs) -5.0% live with a deficit CA (albeit rather narrow) for the
Q1-14 Q4-18 Q3-23
foreseeable future.
Source: BPS
12
 The volatile global rate expectations add to the challenge for
the Rupiah
8 USD Bn 7.14 % 8

5.77

4 4.03
4

0 0
-0.62
Chart 2.3 Foreign capital inflows helped to protect the Rupiah in Equities (lhs)
H1 2023, but the change in foreign investors’ expectations put the Bonds (lhs)
Rupiah under considerable depreciation pressures in H2-23 Net foreign capital inflow
-2.36
Source: Bloomberg. Data per 15 Dec 2023 USD - IDR YTD, rhs
-4 -4
Jan '23 Mar '23 May '23 Jul '23 Sep '23 Dec '23

 Despite the weakening protection from its CA, the still-divided outlook on the Fed’s policy trajectory worked to the Rupiah’s advantage in H1-23.
The Fed pivot narrative ran supreme during that period, leading to the deluge of foreign capital inflows that shielded the Rupiah from global
market volatility – until another shift in the global rate expectations rained down the pressure on the Rupiah in Q3-23.
 The subpar US jobs and inflation data in November, then, brought pivot back to the forefront and foreign capital back into Indonesia. The market,
however, seems to be pricing in aggressive rate cuts by the Fed in 2024 (100 bps or more), meaning that there is a risk of negative policy surprise
(the Fed cutting less than expected) that could spook the market again in the upcoming months.
13
 BI could not put market interventions on the shelf just yet
Chart 2.4 BI continues to rely on its FX reserves to guard against the risk of Chart 2.5 … but the declining reserves versus potential outflows means that
further capital outflows… intervention is mainly a tool of smoothing, not reversing, USD/IDR movements

― BI FX reserves (USD Bn), relative to: 40%

350 USD Bn  Foreign ownership in government bonds
 Foreign ownership in equities FX reserves-to-potential outflows coverage ratio*
30%
 Short-term gov’t external debt*
 Short-term private external debt* 50.2 IDRUSD (% changes, t+12M)
280
20%
15.3 13.5%

210 10%
201.8
0.8%
0%
140 138.1
-10% -4.9%

70
-20%
*Maturing within a year 54.4 *50% coverage rati0 = 0 on the X-axis
Source: Bloomberg, Bank Indonesia
Source: BI, Bloomberg
0 -30%
Jan-07 Sep-12 May-18 Nov-23 Jan-07 Sep-12 May-18 Nov-23

 Unable to rely on the now negative CA balance or a constant stream of foreign capital inflows, BI has relied on market interventions to smooth out
the Rupiah’s movement in 2023. However, prolonged market intervention campaign has proven to be costly, and – despite a massive FX reserves
boost in November, cannot be relied upon in the long-run.
 The purpose of FX reserves, after all, is not just intervention but also deterrence – and the deterrent effect seems to be at its weakest since 2016,
which does not bode well for the currency’s near-term stability. BI, then, still cannot afford the luxury of “pivoting” towards more accommodative
policies, unless the Fed has already pivoted first.
14
 New instruments by BI are competing for a finite, albeit
increasing, supply of FX liquidity …
30 USD Bn Chart 2.6 New FX instruments have been a mixed success, but  BI has tried, with some success, to bolster its FX
excess liquidity has been building up in the domestic reserves, mostly by issuing new instruments to sop up
Eurodollar market throughout 2023 FX liquidity: SVBI, SUVBI, and the export receipts-linked
Banks’ FX placement at BI: term deposit facility (TD-DHE). The latter instrument
▬ FX term deposit ▬ FX Swap ▬ FX certificate (SBBI) was met with limited interest when first issued in Mar-
Private FX placements at BI via banks: 23, but demand was boosted by a new regulation (PP
▬ SVBI/SUVBI ▬ FX term deposit (DHE)
2.61 36/ 2023) which obliged commodity exporters to put
20 0.47 their earnings domestically for a minimum of 3 months.
2.14
 All these have led to notable increase in FX liquidity
17.18 within the system since Aug-23, even as capital
outflows accelerated during that period. The more
flexible nature of the new instruments – which is
available to non-banks and even foreigners – have also
10 12.60 attracted additional liquidity beyond what the
traditional instruments usually provide.
 Still, there is only so much FX liquidity to be absorbed
by these new instruments before they start competing
with each other – or indeed with FX deposits in banks.
Source: Bank Indonesia. 4.66 Given this “crowding out” risk, BI may eventually have
data per 15 Dec 2023
to reduce their issuance volumes to avoid
0
disintermediation of FX loans …
Jan '20 Apr '21 Aug '22 Dec '23
15
 … although FX crowding out is not a concern in the short-term
as SOE liquidity improves
Chart 2.7 Despite capital outflows since May-23, domestic FX liquidity conditions Chart 2.8 The improvement in SOEs’ FX liquidity condition limit the demand for
seems to be improving thanks to the declining demand for FX loans loans in the domestic Eurodollar market

60 % YoY 6% % GDP

NFA Growth (YoY) 3.9%

40 Domestic FX loans growth (YoY)
3% 2.3%

1.5%
20
0% 0.2%
0.0%
0 -0.8%
-0.2%
-3% ― Net bank balance, FX deposit/loans only (% of GDP). Attributed to:
-20 Private sectors Households (incl. MSMEs)
Source: Bank Indonesia, NBFI and others SOEs
Bloomberg
-40 -6% Public sector Source: Bank Indonesia. Calculations by BCA Macroeconomic Research

Jan '03 Dec '09 Nov '16 Oct '23 Jan-11 Mar-14 May-17 Jul-20 Sep-23

 … but that is a story for another time. At the moment, the risk of crowding out is limited by the fact that demand for FX has also been relatively
weak. Declining import values due to global disinflation has been a factor, as has the high borrowing rates in USD – which seems to drive some
corporates to borrow in IDR instead, taking advantage of the narrowing spread.
 The most important driver, however, is arguably the government’s more regular reimbursement schedule for SOEs. Back in 2022, periodic shortages
of FX liquidity on the part of large SOEs such as Pertamina had caused them to seek bridging loans from banks, which in turn leads to periodic
drying-up of FX liquidity in the market. This is no longer an issue thanks to the improvement in SOEs’ cash flow, including in FX.
16
 BI’s new Rupiah instrument points to high-for-longer domestic
interest rates
Chart 2.9 SRBI provides a more consistent pricing signal for Indonesia’s Chart 2.10 Continued increase in SRBI’s yield indicates the market’s preference
short-term bond market for still-elevated rates in the coming months
7.1 %
30 IDR Tn % 7.2

7.02
SRBI auction, total bid per 6.92
6.56
6.7 term length (IDR Tn): 6.9
6.53
20 6M 9M 12M
6.52
― SRBI auction, awarded
6.36 rate (12 M tenor) - rhs
6.3 6.6
Source: Bank Indonesia, Bloomberg.
Compiled by BCA Economic Research
Indonesia’s yield curve, positions before 6.43
(Mar-Jun 2023)* and after SRBI (Sep-Dec-23) 10

5.9 6.3
Mar-23 Jun-23
Sep-23 Dec-23
*ST rates using RR SBN before 15 Sep 2023, SRBI after the date
Source: Bank Indonesia, Bloomberg. Compiled by BCA Economic Research. Data per 15 Dec 2023 Maturity
5.5 0 6.0
0 1 2 3 4 5 15-Sep-23 04-Oct-23 20-Oct-23 08-Nov-23 24-Nov-23 13-Dec-23

 BI also introduced a new IDR instrument, the SRBI, which likewise allows non-banks to participate and has provided a more consistent signal on
the shorter-end of the yield curve compared to previous benchmarks such as government bills (SPN) or BI instruments like SBI or reverse repo
facility.
 As such, the fact that SRBI’s awarded rate is still relatively high – and that incoming bids have been declining – seems to indicate the market’s
preference for high BI policy rates for the foreseeable future. This strengthens our conviction that BI has limited chance to lower the BI 7-day Repo
Rate (BI-7dRR) without significant improvement in domestic (and ultimately global) liquidity.
17
 Narrowing real rate differentials adds another challenge for the
Rupiah
12 % % 40
 While the easing pressures on the global financial market
10.52 allow BI not to follow up on its surprise rate hike in Oct-23,
Chart 2.11 The narrowing real rate
differentials against the US exposed the then, the elevated SRBI rate reveals the limited space for
30
domestic financial market to outflow risks BI to ease the monetary policy.
8.55
in H2-23, and the upside for 2024 are  Another argument that supports this hypothesis is the
8 relatively limited
20
continued need to maintain a healthy real rate differential
between IDR- and USD-denominated assets. This gap had
11.71 been much wider in 2022, when the US was bedevilled by
10
high inflation – and it may grow even narrower next year,
as there is more downside to US inflation (esp. from rent)
4 relative to Indonesian inflation.
0.65
0  The potential increase in UST issuance in 2024 could also
2.93
dampen any potential decline in US rates, a condition that
could further drive global capital towards the UST and
0.77
-10 away from peripheral markets like Indonesia.
0
 One thing that we can take solace from may be the fact
O/N real rate differentials that in recent years, the USD/IDR exchange rate does not
-20 tracked real rate differentials as closely as before. This may
LT real rate differentials (10Y SBN - UST)
be simply down to some anomaly in global financial flows
Source: Bloomberg, calculations IDRUSD (YoY) - rhs
by BCA Economic Research during the pandemic, but it could also reflect Indonesia’s
-4 -30 lessening dependence on bond inflows to stabilize the IDR.
Jan '10 Aug '14 Apr '19 Dec '23

18
 High real interest rates may be a necessity considering still-
strong investment growth
Chart 2.12 Loan growth has remained uncharacteristically strong given the Chart 2.13 Excess investment (vis-à-vis savings) could remain a persistent source
precipitous decline in core inflation of pressure for the Rupiah
2 % YoY % 20 10% % of GDP % 15
YoY

1 10 0.9%
0% 0

-3.3%
0 0
-1.6

-0.7 -10% -15

-1 -10
Core inflation (YoY, %), detrended YoY Changes in:
Net domestic bank balance
Loan growth (YoY, %), detrended (rhs) Source: Bank Indonesia,
Source: Bank Indonesia, BPS. Calculations by BCA Bloomberg. Calculations USDIDR (YoY) - rhs
Macroeconomic Research by BCA Macroeconomic
-2 -20 -20% Research -30
Jan '08 Apr '13 Jul '18 Oct '23 Jan-11 Apr-15 Jul-19 Oct-23

 Indonesia’s real policy rates, of course, have risen on its own even prior to BI making its 25 bps hike in October – simply by virtue of declining
inflation. As such, BI policy has gotten much tighter, which could be justified by the fact that loan growth has not declined as quickly as core
inflation.
 This exceptionally strong investment appetite stands in contrast to savings (especially by households), which has been subpar since the economy
fully reopened in mid-2022. The highly positive real rates, then, may be necessary to generate “forced savings” in order to finance that investment
19
– without which, the financing may have to be “financed” by Rupiah depreciation.
 IDR liquidity remains relatively abundant as “forced savings”
begin to take effect
1400 IDR Tn
 The effect of these “forced savings” are quite apparent
Chart 2.12 Banks’ excess Rupiah liquidity is improving following when we look at the amount of BI instruments bought by
its nadir in May 2023 as higher real rates encourage more banks – which is a measure of excess liquidity that banks do
1200
savings, but much of the improvement came from the BI’s new not deploy towards loans or bonds. Excess liquidity seemed
SRBI instrument 1,020.4 to decline rapidly upon reopening in mid-2022, but soon
1000 recovered in two phases: first suddenly (Nov-Dec ’22) and
then gradually (Jun-23 onwards).
 The “sudden phase” was likely the product of a burst in
800
government spending during the final two months of the
year – something which we will discuss shortly. This burst,
however, did not last and was quickly used up – especially
600 214.7
during the Ramadan/Eid spending spree when IDR liquidity
495.2 was at a premium.
400  It is the “gradual phase”, then, that marks out the effect of
the forced savings. Higher real yields, strengthened in
recent months by the brand new SRBI, has allowed banks
200
and BI to absorb liquidity from the real economy.
*include sharia instruments and facilities  As with the new FX instruments, the SRBI also opens up a
Source: Bank Indonesia
0 new risk of crowding out and dis-intermediation. In the
Jan '20 Apr '21 Aug '22 Dec '23 short-term, however, it is a key part of BI’s toolkit to re-
▬ Banks’ Rupiah placement on BI* (Excl. SRBI): duce the risk from the growing savings-investment gap.
SRBI Standing facility Repo facility Market instruments
20
 The high amount of maturing bonds in Q1-24 adds to the
government’s substantial financing needs
15 USD Bn 2.0 USD Bn Chart 2.15-2.16 The government
Indonesia outstanding IDR bonds, and the corporate sector may
by maturity date. Issued by: 1.68 Indonesia outstanding need to front-load their bond
Government SOEs* Corporates FX bonds, by maturity issuance given the significant
1.51
10.76 date. Issued by: amount of IDR and FX bonds
1.5
Government SOEs* maturing in Q1-24, which could
10 9.17
put pressure on domestic
8.06 Corporates
liquidity if global market
1.0
conditions turns unfavourable
during that period
Source: Bloomberg
5 *including SOEs’ subsidiaries and other
government’ controlled corporate entities
0.5

0 0.0
Jan-24 Apr-24 Jul-24 Oct-24 Dec-24 Jan-24 Apr-24 Jul-24 Oct-24 Dec-24

 We have laid out the argument for the need to stabilize the Rupiah by instilling more savings (and accordingly more discipline on loan creation) in
the short-term. This is made more urgent by the financing needs from the public sector – not just for the government’s accelerated spending in
the run up to the Elections, but also because of the amount of government bonds set to mature in early 2024. The government itself has taken
some precautionary measures here – among others, by reducing net bond issuance for 2024 and making more use of their accumulated savings
(SAL) instead as lower oil prices throughout 2023 help the government to save the money earmarked for the spending on subsidy.
21
 Demand from foreign investors will be crucial for government
bond outlook …
 Foreign investors have been a key source of
10 %
demand for new government bonds (SBN)
JCI forward earnings yield (BEst) 10Y SBN yield
issuance in 2023, which in a way represents a
return to normalcy after the anomalous
pandemic years when foreign inflows mattered
less. The strength of these inflows during the
8 7.76
initial months was such that yields fell below
what we would expect from P/E ratios in the
stock market.
6.61  This state of affairs did not last, but it underscores
6.50 the two scenarios that we may be facing in 2024.
6
6.16 In the first one, Fed pivot drives down SBN yields
5.86
but would have much bigger (positive) impact on
stock valuations. If the pivot is delayed or not
forthcoming, however, this could undercut bond
Chart 2.17 Government bond yields have valuations to much larger extents than equities.
4
declined relative to equities earnings yield,  All these suggest that much uncertainty remains
which could suggest future reversal – either with respect to bond market outlook in 2024 –
higher bond yields or higher stock valuations and that the government is right to take the
3.17
Source: Bloomberg. Data
per 15 Dec 2023 aforementioned precautions. The issue, of
course, is that domestic capacity to absorb new
2
Jan '15 Mar '17 Jun '19 Sep '21 Dec '23 SBN issuance has become more limited.
22
 … given the much-diminished domestic capacity to absorb
additional government bonds
Chart 2.18 Domestic investors play a crucial role in driving the demand for SBN Chart 2.19 …but its already limited liquidity growth may restrict its ability to
throughout 2023… drive the demand for SBN

1600 IDR Tn 20% % of GDP 17.6%

― YoY changes in SBN
15% ― Net domestic bank balance, private
outstanding, by holders:
1200 sector (% of GDP)
Banks
Bank Indonesia (nett) 10% Others NBFI Corporate Household (incl. MSMEs)
Non-banks, other residents
800 5%
Insurance and pension funds
Individual
Non-banks, foreign 0%
400
291.46
-5%

0 -5.8%
-10%
Source: Bank Indonesia, calculations by
BCA Macroeconomic Research
Source: DJPPR -15%
-400
Jan-11 Mar-14 May-17 Jul-20 Sep-23
Jan-17 Dec-18 Nov-20 Oct-22 Dec-23

 Indeed, domestic demand had been key to SBN’s stability during and after the pandemic. Banks played the lead role during the early phase (2020
to mid-2021), buy channelling their excess liquidity to SBN. This was followed in the middle phase by BI, courtesy of its “burden sharing”
agreement with the Ministry of Finance. With the end of burden sharing in 2023, then, the task of buying new SBN fell on private individuals and
corporates but – much more importantly – also on non-bank financial institutions (NBFI).
 Unfortunately, these sectors may have less room to acquire SBN at the moment, given their negative net savings in the past one-and-a-half year.
There are exceptions – notably, government-affiliated NBFIs like BPJS – but the overall situation puts SBN yields increasingly at the mercy of the
global market.
23
 Still-high liquidity in the public sector may help the government
to manage its lending rate…
1600 Tn IDR
 Despite early signs of accelerated fiscal spending,
Chart 2.20 The government’s strategy to slow down its the still-substantial banking sector’s liabilities to
fiscal spending and thus increase its SAL balance in 1,369.8
the public sector show that the government still
2022 provides insurance against the risk of yield sits atop a substantial pile of cash they could use to
increase finance their fiscal commitments in Q4-23 to Q1-
1200 1,182.7 24. These accumulated savings (SAL), we argue, are
▬ Total liabilities to the at the crux of the government’s precautionary
public sector (IDR Tn), from: strategy.
BI to the central government
 Most importantly, the government could use its
Banks to the central government substantial liquidity buffers to bridge the
800
Banks to regional governments financing gap until a probable shift in the global
Source: Bank Indonesia monetary policy regime could allow the
government to issue SBN at a lower lending rate.
 However, as we mentioned earlier, despite the
increasingly feasible signs of economic slowdown
400
in the US, it remains unclear how quickly the Fed
would loosen its policy stance in 2024. Such
“tactical issuance” strategy, then, is not entirely
riskless, and could even force an urgent
“backloading” should the government’s cash
0 buffers allowed to fall to a much low level in mid-
Jan-11 Mar-14 May-17 Jul-20 Sep-23 to late-2024.
24
 … but Indonesia’s real sector may benefit more from timely
fiscal disbursement
300 Changes in public sector net bank
 Another possibility is that the government may opt
balance (MoM), Tn IDR Chart 2.21 Close relationship between to scale back its spending, similar to how it has
domestic liquidity and the government’s spending realisation has been relatively slow in
fiscal cycle may require the government 2023. Alas, this conservative posture is not
to quickly disburse its budget to entirely tenable given the risk of high food prices
maintain the domestic aggregate
during an Election year, plus the desire to
150 demand growth momentum
expedite strategic projects (including the new
capital city/IKN) in the last year of Pres. Jokowi’s
term.
Sep-23  A further important point is the need to replenish
private liquidity, for which the government had
0 played a key role at the end of 2022 as we have
seen earlier. Indeed, there is close correlation
between the fiscal cycle and private liquidity,
whereby government spending translates to
Jan 2011 - Dec 2022 private savings and vice versa.
-150
December only  Without a quick and expansive fiscal spending, the
forced savings that is required to balance out
Jan-Sep 2023 investment would have to come from deferred
Jan-23
consumption. Government spending, then, plays a
Source: Bank Indonesia, calculations
by BCA Economic Research crucial role in keeping the domestic aggregate
Changes in private sector net bank
-300 balance (MoM), Tn IDR demand growth alive – a topic which we will
-200 -100 0 100 200 300 discuss in the next chapter.
25
#3: Domestic consumption
“Refuel and reload after a long cruise”
Consumers have been living the high life in the past two years, buoyed by renewed
optimism, excess savings, and a shot of global disinflation. Normalization beckons,
but Election-related spending, consumption-oriented stimulus, and continued low
inflation could help Indonesian households defy gravity for the third straight year.
 Two years of consumer feast – is famine coming next?
400 Tn IDR 334.76

172.47
200

-109.65
-200
-165.98
▬ Households’ (incl. MSMEs) net bank
balance (YoY changes) components: Chart 3.1 Households have been borrowing -282.13
-400
Deposit Loan more than they save in the past two years,
running on accumulated pandemic-era savings
Source: Bank Indonesia, calculations by BCA Economic Research
-600
Jan-12 Apr-13 Aug-14 Dec-15 Mar-17 Jul-18 Nov-19 Feb-21 Jun-22 Oct-23

 As the old saying goes – no such thing as a free lunch – the strong growth in the past two years have come at the expense of savings. Post-
pandemic pent-up demand turned into a spending spree fueled by the excess savings accrued during the pandemic. Even after this fuel had run
out, households continued in spending mode, supported in part by consumer loans.
 A two years straight net spending for households is not normal, and may not be sustainable. On the one hand, this is positive news for economic
growth, given that household spending constitutes more than half of Indonesia's economy. On the other hand, it means that households now
have limited net liquidity, translating to less money available for spending in the upcoming year.
27
 Aside from spending, consumers also move their money to
time deposits
20 % YoY Households deposit balance (YoY  The slowing household deposit growth was
changes), by account type: evident since the economy reopened in
Savings Account mid-2022, and seems to have bottomed
Time Deposits out in mid-2023. In fact, at 5.9% YoY by
BI rate hike Oct-23, household deposits have grown
Total (SA+TD)
faster than overall deposits (3.4%).
11.34
10  This growth, however, does not necessarily
translate to higher willingness to spend –
6.22 but rather a more restrained stance. High
5.94 interest rates have induced households to
shift their money away from savings
2.77 account (SA) to the less-liquid time
deposit (TD).
0
 The vast majority of the extra savings that
households have received in the past year,
Chart 3.2 Household deposit growth has then, has been used to seek for yield rather
slowed down and, more importantly, shifts than to add buffers to potential future
towards less-liquid time deposits spending. This is probably not so
-5.69
detrimental for basic/staple consumption,
Source: Bank Indonesia, calculations by
-10 BCA Economic Research but clearly a blow to discretionary
Jul-14 May-16 Mar-18 Jan-20 Dec-21 Oct-23 spending.

28
 High-income households have retained optimism, but it has
not fully translated to spending
Chart 3.3 Consumer confidence have plateaued at a high level following the Chart 3.4 …and this has generally been followed by big-ticket items,
reopening of the economy … with motorcycles briefly being an exception in 2023
50 YoY 100 % YoY
Consumer Confidence Index
(YoY changes), by expenditure Car Sales
level: Motorcycle Sales
> IDR 5 Mn 50 Residential Property Sales
IDR 1 - 2 Mn
12.2
Total 11.28
4.3
0 0
-0.4 -6.59
-12.01

-50
Source: Bank
Indonesia (Q4 ’23 Source: Bank Indonesia, GAIKINDO
until Nov ’23)

-50 -100
Q2-18 Q1-21 Q4-23 Q1-18 Q4-20 Q3-23

 Strong confidence certainly plays a role in supporting consumption – especially for durable/big ticket items. The recovering confidence at the tail-
end of the pandemic, then, had led to a massive jump in big ticket purchases. But consumer confidence could only rise so much, and the same is
true for durable goods – except, interestingly, for motorcycles which might indicate stronger spending for lower-middle income households.
 If we cannot boost optimism further, then, the only option is to boost their income. The Elections and the government’s coffers looks to be the
main drivers that would “refill” these households’ net savings.
29
 The general election is an oasis for the dry liquidity beds
Chart 3.5-3.6 The general election period typically is a peak spending for the government and NPOs,
lifting aggregate demand and increasing money velocity  The case for stronger consumer purchasing power
in the short-term is straightforward. Spending by
2.0 Contribution to YoY growth the government (and non-profit institutions
including political parties and related
Government (collective) organisations) have always peaked before and
1.0 0.87 expenditures
during general elections.
0.59
 And indeed, the government has recently created
new programs – on top of the usual line items –
0.0
that could expedite these spending. These
include tax incentives for real estate purchase,
but most importantly several social assistance
-1.0
programs such as the El Nino cash transfer (BLT El
Nino), in-kind food assistance (BLT BNPT), and 10
0.4 End of campaigning kg rice assistance.
period
0.25  All these are likely to provide significant boost to
0.20
0.2 Non-profit organization
consumption in Q4-23 and Q1-24. There is even
spending some argument that the positive effects would
last into Q2, if there is a presidential runoff, or
0.0 even until Nov-24 when regional elections are
slated to take place. Taken together, we expect
Source: BPS, calculations by
BCA Economic Research the “Election effect” to probably add 0.1-0.2%
-0.2
towards consumption growth.
Q1-11 Q3-13 Q1-16 Q3-18 Q1-21 Q3-23

30
 Beyond Election-related spending, government spending may
not be a major growth contributor
15.0 % YoY
spending grows  The nagging question, of course, is whether there is
faster than GDP 13.7 sufficient catalyst for consumption beyond the Elec-
13.2
12.6 tions. In general, the plans for public sector spend-
10.0
11.3 ing in 2024 are none too aggressive, as we can see
8.0 projected nominal GDP growth from the Budget and infer from the cautious stance
of many SOEs in the past year.
 There is a good argument – as we will also discuss in
5.0 5.8 Chapter 4 – that the pace of public investment will
3.9 4.0 accelerate in the final year of Pres. Jokowi’s term.
Still, there is unlikely to be a vast array of new infra-
structure projects beyond these existing ones, given
0.0
0.3 the substantial decline in CAPEX budget.
-1.7
 If anything, the largest growth in spending are in
Chart 3.7 The government has a large tactical budget (“others”) civil servant salaries (which is mostly mandatory),
-5.0 -5.6 to deploy, but spending are largely below projected GDP growth and for interest payment (which will not stimulate
Source: Ministry of Finance, calculations
growth). Still, there is a pretty large growth in
by BCA Economic Research “other” budget, which is ostensibly aimed at
potential compensation for Pertamina selling retail
-10.0 fuel at sub-market prices. The recent decline in oil
CAPEX Goods Energy Regional Social Total Salaries Non-energy Others Interest prices, then, could free up extra fiscal space should
subsidies transfers assistance spending subsidies payment
the need arise to add more fiscal stimulus.
31
 Disinflation helps Indonesian consumers amid limited nominal
gains in their earnings
40 % YoY
 The other potential tailwind for consumers is the
continuing disinflation for much of consumer
30 goods. This is something we have seen for much of
2023, thanks largely due to supply overhang in
20 16.74 China – and therefore also in line with the
disinflation trend else-where in the world.
12.42
10  That disinflation has been a boon is plenty evident
from our big data. We can calculate our “Intrabel”
0 (indeks transaksi belanja/consumer spending
-4.32 index) in two ways: based on nominal transaction
-10 values, and based on transaction volumes or
frequency.
-20  If we just focus on transaction value, it would seem
Volume-Value Gap as if we are seeing a consumer recession, as growth
Chart 3.8 A slower growth of consumer
Intrabel BCA (value-wise) was (at times) negative. Thanks to the fall in
-30 expenditure value does not necessarily mean
Intrabel BCA (volume-wise) slower spending, as spending volume growth prices, however, consumption volumes have
has remained relatively robust actually been robust – and is in fact starting to
-40
accelerate during H2-23. The volume-value gap, in
Source: Big Data BCA, calculations by BCA Economic Research other words, is the main factor that “salvages”
-50 Intrabel = consumer expenditure index consumption despite the limited growth in the
Jan-18 Jun-19 Dec-20 May-22 Nov-23
Rupiah value of their spending.
32
 Demand for durable goods have been held aloft by disinflation
60 % YoY ▬ Consumer goods imports value Chart 3.9 Consumer goods imports have Peak electronics +
(%YoY, WDA), by category: been steady throughout the year, with a vehicles imports
50 shift towards discretionary items
Household goods
Edibles & tobacco
40
Electronics & households appliances
30
Vehicles
Textile
20 Others

10 11.44

-10

-20
Source: BPS, calculations by BCA Economic Research
WDA = working-days adjusted
-30
Jan-18 Feb-19 Apr-20 May-21 Jul-22 Sep-23

 The products that seem to benefit the most from this disinflation are electronics and vehicles – thanks partly to the easing of chip shortage and the
global competition in electric vehicles (EV) production.
 In contrast, edible imports are not the major contributor to import growth like in the previous two years, which might be related to the climate-
induced weakness in global food production. The combination of these two means that the benefit of disinflation is disproportionately enjoyed by
the middle or even upper class, rather than the lower classes who would therefore continue to depend on fiscal support.
33
 Inflation would remain moderate, but there is less room for
further disinflation in 2024
Chart 3.10 As fuel hike effect subsided, food inflation has taken over as the main Chart 3.11 The gradual slowing of China’s inventory growth could be a sign that
inflation driver disinflation momentum is beginning to moderate
7 % YoY 25 % YoY

6 20

5
▬ CPI Inflation (%YoY), 15
contributions from:
Core 10
4
Administered
3 Prices 5
2.86 3.7
1.25 0
2
0.37
1 -5 -5.7
1.23 China Real Industrial Inventory (Inventory - PPI)
0 -10 Indonesia Imported WPI (Wholesale Price Index)
Source: BPS, Bloomberg, calculations by BCA Economic Research
Source: BPS, calculations by BCA Economic Research -15
-1
Jan-20 Oct-20 Jul-21 Apr-22 Jan-23 Nov-23 Jan-13 Mar-15 May-17 Jul-19 Sep-21 Nov-23

 Unfortunately, whether for staple food or discretionary items, there are signs that the bulk of disinflation has already happened in 2023 – although
high inflation is also unlikely to return in 2024. The most pressing issue is food inflation, which could persist into Q2-24 when the combination of
potentially poor harvest due to residual El Nino effect and extra demand during Ramadan/Lebaran could collide. Still, the government’s proactive
moves in securing food imports should be able to cap annual inflation in 2024 slightly below BI’s upper target of 3.5% YoY.
34
 Can stimulus and competition in consumer loans cancel out the
effect of rising real rates?
Chart 3.12 The latest rate hike cycle has had very little transmission towards consumer loan rates …  Given that consumers have been net borrowers – and
15 % that some “forced savings” might be induced by higher
real rates – there are some argument that consumer
loans could be the first driver of consumption to soften
10 10.23 in the coming year.
8.65
7.32  There are some early signs of such slowdown, such as
5 6.00 in auto loans. The sharpest fall, however, is actually for
P2P loans, whose decline from 2021-22 was nothing
Source: Bank Interest rate (%), by category
Indonesia, BPS BI7-dRR Mortgage rate Auto loan rate Consumption rate short of precipitous. But this is arguably driven by the
0 lack of cheap global liquidity, which funded the entry of
Jan-16 Jul-17 Feb-19 Sep-20 Mar-22 Oct-23
new (often foreign-owned) P2P lenders at the time.
Chart 3.13 … although loan growth has slowed, partly on lower burn rate among P2P lenders  While this takes out a liquidity source for low-income
households, it still leaves a substantial consumer loan
40 % YoY Better divide mortgage & auto loan 160
Loan growth (%YoY) by category: market for domestic banks – and here the outlook is
30 Consumption loan (bank) growth
Mortgage loantoo
(bank) 120 significantly less gloomy.
Auto loan (bank) Total loan (P2P lending)
20 80  The authorities maintain policies such as relaxed LTV
12.00 rates and tax incentives on property sales that would
10 8.96 40 support the housing and auto markets. At the same
time, strong competition among banks meant that the
0 14.28 0 increase in consumer loan rates have been de minimis,
-10 Source: OJK 6.67 -40 in spite of the 250 bps policy rate hike since mid-2022.
Jan-16 Jul-17 Feb-19 Sep-20 Mar-22 Oct-23
35
 Catering to the domestic market is still a reasonably attractive
proposition for businesses
Chart 3.14 Post-pandemic revenue for consumer-oriented corporates have been Chart 3.15 … while on the other hand, margin compression for discretionary
strong, albeit normalizing … products have begun to ease in recent quarters
80% T12M changes 8%

Listed companies revenue growth

(T12M, %) – by sub sectors: 4.31%
Consumer discretionary 4%
40% Consumer staples

0%
14.96%
Listed companies profit margin
6.52% -2.27%
0% (T12M average)– by sub sectors:
Consumer discretionary
-4%
Source: Bloomberg. Calculations by
BCA Macroeconomic Research
Consumer staples
Source: Bloomberg. Calculations by
BCA Macroeconomic Research
-40% -8%
Q1-12 Q2-15 Q3-18 Q4-21 Q3-23 Q1-11 Q2-14 Q3-17 Q4-20 Q3-23

 The robust consumption growth for the past two years has translated to businesses’ revenues, especially for those that cater to discretionary
consumer spending. In terms of profit margins, however, the staples and discretionary sides could not have been more divergent.
 The former saw soaring margins as food/energy inflation gives cover for an increase in the pricing of essential items. Meanwhile, local producers of
discretionary goods have to contend with competition from cheap Chinese imports and rising costs of key intermediates (e.g. chips for electronics).
Fortunately, there are signs that the margin compression is starting to ease, and that these companies could enjoy healthier profits in 2024 – albeit
possibly on slightly normalised volume growth.
36
#4: Trade and Investment
“Going full speed amidst the doldrums”
With commodity boom in the rear-view mirror, Indonesia may be facing narrow, but
persistent, CA deficit. This could be a problem given the still-strong appetite to invest
among Indonesian corporates, plus the acceleration of public projects in 2024. The
strong growth/shaky Rupiah conundrum may not be solved in the near-term, given the
limited effect of investment to exports and of FDI to domestic FX liquidity.
 China’s continuing recovery could keep a decent floor on
commodity prices…
150% YoY
Chart 4.1 Commodity prices showed
some upward movements in H2
2023 as China’s manufacturing
sector recovers from its nadir
100%
Bloomberg Commodity index (YoY)
Bloomberg Energy Commodity index (YoY)
China economic activity index (Li Keqiang
50% index), YoY - rhs
0%
30%
 The Indonesian economy has been considerably lucky in the
YoY
past three years. For instance, rather than hindering
116.8% economic recovery, supply shocks in 2021-2023 allowed the
economy to recover more quickly than its peers. However,
the music in the global commodity market appears to have
stopped playing, and net exports have netted negative
contributions to the real GDP growth in the past two
20%
quarters. Could we continue to count on exports to boost
our economy then?
 It is important to note that while prices are a long way down
from their 2022 peak, commodities continue to trade at
higher prices relative to pre-pandemic levels, as uncertainty
over geopolitics and energy transition continue to breathe
-12.3% volatility into the commodity markets.
10%

-30.5%
 The joker in all this is, of course, China. Although its
7.0% consumption remains anaemic, the Chinese authorities’
-50% efforts to stimulate its manufacturing sector has help put a
floor on commodity demand. It has also compensated
Indonesia’s worsening terms of trade with higher export
volumes. Alas, the stimulus-dependent nature of this revival
Source: Bloomberg
-100% 0% means that we cannot be too sure whether this trend will
Jan '05 Apr '11 Jul '17 Oct '23 remain sustainable in 2024 – let alone in the long-run.
38
 …but the ceiling on Indonesia’s commodity exports may not be
too high either
Chart 4.2 China’s recovery economy may not translate to a spike in coal prices, Chart 4.3 Global demand for coal have been greatly trailing production,
given the increase in China’s own domestic production in a similar manner to the mid-2010s

20 YoY, % YoY, % 50 9200 MT YoY, %200

162.5
World Coal Production (Mt)

World Coal Consumption (Mt)

10 25 8700
Coal prices (YoY) - rhs 8,597.7
100
8,377.0

0 0 8200
-0.65
-2.94
0

-10 -25 7700

China coal production

China coal inventory - rhs -49.9

Source: Bloomberg Source: IEA
-20 -50 7200 -100
Mar '16 Sep '18 Mar '21 Sep '23 2011 2014 2017 2020 2023*

 Unfortunately, China's recovery is not entirely beneficial for Indonesia, especially since the Chinese government has prioritised energy
independence in its current five-year plan. This effort involves massive investment in renewable energy, but also a ramp-up in coal production –
even as fossil fuels become a smaller part of the country’s energy mix. As a result, there is now a massive gap between coal production and
consumption, not unlike the situation during the pandemic or the mid-2010s doldrums.
39
 The commodity terms of trade may not swing much in
Indonesia’s favour
50 Index Ratio 6  The softening global demand for goods also does not bode well
45.35
for the sustainability of China’s industrial recovery – and thus, by
Chart 4.4 Ongoing concerns regarding 5.29 extension, the demand for raw materials as well. The fall in coal,
the global commodity supply chain
gas, and metal prices have reflected this fear – but the fact that
may have more impact on
oil is now also affected should raise the alarm bells even more.
40 commodities than Indonesian
imports, suppressing Indonesia’s CA  Oil prices, of course, are supposed to be more resistant to
demand shocks as it is upheld more strenuously by a cartel of
Indonesia Terms of Trade
4 producing countries (OPEC+). This is evident during Q3-23, when
30 Coal-to-oil ratio (rhs) oil actually rallied after OPEC+ announced large output cuts. By
Q4, however, signs of fracture begin to emerge within the group
as Saudi seems unwilling to shoulder the lions’ share of the
output cut, while US shale producers take over the market that
they vacated.
20
16.4
 Any hopes for an oil rebound, then, must rely on geopolitics. If a
2
1.90 conflict arises that would put OPEC+ countries back on the same
page (like the Russia-Ukraine War) then it may lead to renewed
rally, but if it put them on opposite sides (as in the Israel-
10
Palestine War) then the decline will likely be baked in.
 Given Indonesia’s status as an oil importer, low prices are
Source: Bloomberg
certainly more favourable. Still, the fact that the upside in
0 0 commodities lie mainly in something that we import indicates
Jan '09 Dec '13 Nov '18 Nov '23 that there is very little upside to Indonesia’s terms of trade.
40
 Cheaper imports are a boon for local manufacturers …
100 Import volume, T12M  The same disinflationary trend extends beyond
changes (% YoY) commodities and into intermediate and finished
Higher volume, goods, given the excess supply in China. This has been
HS3: Fish, Crustaceans,
lower unit prices others a boon for Indonesian consumers, as mentioned, but it
HS9: Coffee, Tea, others actually works to the benefit of producers as well – as
50
HS61: Knitted clothes HS27: Mineral fuels, oils, HS88: Aircraft and its
they enjoy declining unit costs on raw materials and
etc components even capital goods.
HS72: Iron and steel
 This is coupled with the increased desire by Western
HS87: Vehicles
HS30: Pharmaceutical HS31: Fertilizers Higher volume, companies to “de-risk” their supply chains away from
products higher unit prices
HS95: Toys, games, and
China, which has led countries like Vietnam and
0
sports equipment Mexico to become a prime assembly centre for US-
Lower volume, bound goods – even as the components are still largely
HS50: Silk
lower unit prices imported from China. Indonesia’s positive
Chart 4.5 Local manufacturers manufacturing PMI indicates that we might be
HS92: Musical have been able to benefit benefiting from some of these spill-overs, albeit not
-50 instruments
from cheaper input products to the same degree as the others.
despite the heightened
Lower volume, higher  Unfortunately, all these positives for Indonesian
competition against importers
unit prices manufacturers must be weighed against the
HS75: Nickel and articles Source: BPS Import value, T12M downsides, most notably competition from cheaper
HS11: Products of the
-100 milling industry
thereof changes (% YoY) imported finished goods. This is a problem particularly
-100 -50 0 50 100 for certain industries such as steel, where there is a
Indonesia imports, annual changes: massive overcapacity in China, and textiles, where
Food and agricultural commodities Minerals and energy commodities Industrial commodities additionally the local industry has also been saddled by
Textiles and wearables Base metals Manufactured goods debt problems and structural loss in competitiveness.
41
 …but it is only of marginal benefit given Indonesia’s
commodity-dependent export profile
Chart 4.6 Recent export volumes growth is almost exclusively driven Chart 4.7 … while the prospect for growth in manufactured goods exports appears to be
by commodified goods such as base metals … limited given the Western economy’s weakening growth momentum
600 Index, 2015-19 avg = 100) Singapore 35.5%
Philippines 37.7% Exports volume, 2022-
485.9 Thailand 34.1% 2023 total. % share of
Exports volume, T12M. USA 28.1% total exports by HS
Per HS code 408.9 Australia 28.7% code to importing
400 Vietnam 23.2% countries:
Agri and food
Germany 24.4%
Mining and Energy Agri and food
Japan 42.3%
Industrial commodities
World 26.7% Mining and Energy
Textiles and wearables 234.7
Malaysia 42.1%
Metals 202.0 157.9 Textiles and wearables
200 Netherlands 35.9%
Manufactured goods 155.3 South Korea 51.0% Industrial commodities
153.4 India 40.4%
114.4 Metals
Bangladesh 43.2%
108.7 China 31.6% Manufactured goods
Pakistan 78.9%
0 Source: BPS
Jan-13 Sep-15 May-18 Jan-21 Sep-23 0% 20% 40% 60% 80% 100%

 There is also a justifiable doubt on whether Indonesia is able to pounce on the opportunity, given the commodity-dominant nature of its exports.
The main success story in the past few years (if we discount price effect and temporary boost) has been metals, especially nickel, the demand for
which is strongly dependent on China. Steel oversupply, compounded by China’s construction slowdown, suggests limited upside for export
volumes here.
 On the flip side, Indonesia’s exports to the West are dominated by manufactured goods, particularly textiles and other wearables – which creates
an-other dilemma. On one hand, the Western economies (Europe in particular) are suffering from weakening demand. On the other, even if the
42
demand remains robust, it is unclear if Indonesia’s industries would be able to take advantage.
 Relatively robust exchange rate may continue to work on
importers’ favour
20% Real effective exchange
rate (2023 YTD YoY)  The Rupiah’s relative strength versus other Asian currencies
Mexico may also work to the disadvantage of Indonesian
Hungary
Chart 4.8 An expensive manufacturers. In fact, Indonesia’s real effective exchange rate
15% currency would benefit (REER) has become elevated (103.05 in 2023, compared to
local importers, meaning 101.03 pre-pandemic average). This, of course, restricts local
that imports may remain R² = 0.4389 manufacturers’ cost-competitiveness in the global market,
attractive for Indonesian rendering them more reliant on the domestic market to absorb
10% customers given the their products.
Rupiah’s high real
valuation (REER)  Alas, an overvalued currency also makes imports more
Poland attractive to consumers, which is evident from the rather stable
5% import volumes compared to most other Asian countries (bar
Germany Brazil
Thailand
Malaysia and India). China’s inventory fire-sale further boosts
US this dynamic, a condition which may threaten the market share
UK for local producers.
0%
Philippines  This, then, could be a side effect of BI’s conservative policy as
Indonesia Malaysia
South Korea we discussed in Chapter 2. A strong Rupiah might not be
optimal if we wish to reorient Indonesia’s industries towards
-5% India manufacturing, but the short-term cost of weaker Rupiah might
be difficult to bear – both psychologically and in terms of
consumption growth. It does seem that the growth model
Japan Source: UN Comtrade, Import volume
CEIC, BIS growth (2023 YTD)
driven by “commodity-consumption combo” remains the path
-10%
0% 2% 4% 6% 8% 10%
of least resistance for Indonesia for the foreseeable future.
43
 Price-stabilisation efforts further add to imports
Chart 4.9 Indonesian rice imports have increased significantly since H2-22 as the Chart 4.10 The share of fuel imports begins to rise again
government prepares for potential disruptions in domestic rice supplies after it fell following the Sep-22 fuel hike
2.0 USD Bn 30 % 1

Indonesia grain imports 1.7 25.2

COVID-
(3MA), USD Bn 19
Soy beans Wheat Rice
1.5 0.4
Source: BPS
20 18.8

44.4% 16.8
1.0 Subsidised
fuel price hike

1.0
30.8%
10
Oil and gas Subsidised
imports, % of fuel price hike
total imports 28.2%
0.5
Subsidised
Source: BPS fuel price
18.2% 6.9
hike
Subsidised
0.3 fuel price hike

0.0 0 0
Mar '19 Sep '20 Mar '22 Sep '23 Jan '09 Oct '12 Jul '16 Apr '20 Oct ‘23

 One clear benefit from a strong and stable Rupiah lies in the cheaper cost of food and energy imports. Given the backdrop of El Nino plus the
political context in 2024, the government has stepped up its efforts to import rice to calm down rising concerns over food inflation. For energy,
mean-while, the cheaper price seems to have revived some consumption momentum that had been lost after the fuel price hike last year.
44
 The commodity-consumption engine has been sputtering,
which undercuts corporate Indonesia’s revenues …
40 % YoY  All in all, a decline in commodity prices remains a net loss
34.3 in corporate Indonesia’s book. It also has negative impact
on purchasing power, especially outside of Java where
Chart 4.11 Domestic corporate sector’s
revenue plummeted in Q3 2023 as the economy largely revolves around commodity
commodity prices further normalised extraction. The twin engines of the commodity-
consumption combo, as such, has been under pressure
as of late.
20 0.21  Interestingly, the bigger drag on corporate profits seems
0.75 to come from the consumers’ side rather than commodi-
12.9 ties. This is not entirely unsurprising. As mentioned pre-
1.40 viously, large parts of the recent consumption growth has
7.22 been captured by foreign exporters rather than local pro-
2.27 ducers. Given this competition, producers are also more
1.03 reluctant to pass on their costs to their customers, which
0
leads to margin compression – although this appears to
be stabilizing in recent quarters.
Corporate revenue (annualised growth), listed Source: Bloomberg.
companies only. Contributions from: Calculations by BCA  Finally, there is also a matter of the business cycle, whose
Economic Research
IT & Communication Services Consumer products ups-and-downs have been amplified by the pandemic. As
Energy Industrials mentioned in Chapter 3, the extraordinary recovery after
Materials Others -13.9 the end of the lockdowns have sapped much of the
house-hold savings – unless recharged by Election-driven
-20
Q1-12 Q3-14 Q1-17 Q3-19 Q1-22 Q3-23 public spending.
45
 … but CAPEX remains uncharacteristically strong amidst the
slowdown
60% YoY 1  Accordingly, then, the strong capital expenditure (CAPEX) growth –
Chart 4.12 The domestic corporate which is quite unusual given the weakening revenue – has been
sector continue to allocate substantial driven mostly by the export-oriented commodity sector rather than
resources for CAPEX despite the domestically-oriented consumer goods (and services) sector.
weakening revenue growth, a condition COVID-19
40%
which may add to Indonesia’s CA deficit pandemic  Investors seem to view the cooling down of commodity prices as a
temporary situation due to a combination of high Fed rates and
slowing demand, while the long-term outlook remains excellent
23.7%
given the tailwinds from geopolitics and energy transition.
20%  For many Indonesian commodity producers (and business conglo-
12.9% merates that include such producers), there is also an additional
urge to deploy the substantial cash piles they had amassed during
the previous commodity boom. The bonanza for commodities and
0% “downstreaming” thereof, then, are still far from over.
 Unfortunately, CAPEX in excess of revenue probably translates to
growing S-I gap, which naturally leads to CA deficit – and the
robust imports of capital goods so far essentially confirms this.
-20% -13.9%
And given the CAPEX increase is partly self-financed (and partly also
IDX-listed companies’ financial financed from abroad/FDI), the recent increase in real rates is
performance, annualised growth (%): -27.0% unlikely to dampen its momentum substantially.
Revenue CAPEX  On a whole, then, this is likely to be a resilient source of growth
-40% 0

Q1-07 Q3-12 Q1-18 Q3-23 for Indonesia into 2024 – but one that has to be counterbalanced
by internal savings in other areas.
Source: Bloomberg, calculations by BCA Economic Research
46
 Investment growth are not entirely driven by commodities
Chart 4.13 Domestic investors dominate the service-heavy tertiary sectors, Chart 4.14 Indonesia’s resource nationalism has proven effective in attracting
although interest in the “new economy” begins to pick up in Q3 2023 foreign investors into the capital-intensive "new economy" sectors
50 YTD YoY (%) 60 YTD
YTDYoY
YoY(%)
(%)

40

34.8 40 39.8
30
22.7 32.7
22.3
20
20.2 20
14.7
10 *including base metals, utilities, transportation & 12.9
*including base metals, utilities, transportation & warehousing, and telecommunication industries
warehousing, and telecommunication industries Source: BKPM
Source: BKPM
0
0
Q1 2016 Q3 2017 Q1 2019 Q3 2020 Q1 2022 Q3 2023 Q1 2016 Q3 2017 Q1 2019 Q3 2020 Q1 2022 Q3 2023

Prioritised sectors* Primary sectors

Prioritised sectors* Primary sectors
Secondary sectors (excl. basic metals) Tertiary sectors (excl. utilities and telco) Secondary sectors (excl. basic metals) Tertiary sectors (excl. utilities and telco)

 But while certain prioritised sectors (metals, energy, logistics, and IT-related sectors) is at the heart of this CAPEX boom, the investment boom is
by no means limited to these industries. Indeed, domestic investment remain rather evenly spread among other sectors, albeit now increasingly
led by the tertiary sectors. The latter probably reflects public-sector investment, in particular the construction of prioritized national strategic
projects (PSN) – including the new capital city (IKN) – which are expedited by the end of Pres. Jokowi’s term in office.
 Foreign investors, on the other hand, are more focused on these prioritized sectors, followed closely by other secondary (manufacturing) sectors.
This is a positive sign not just in the short-run, but also for the long-term goal of economic transformation – given Indonesia’s dependence on
47
foreign know-how in many technical areas.
 China’s share of the FDI pie has increased, but other countries
have not lagged too far behind
60 USD Bn, T12M  The accelerating pace of FDI growth has been a constant
theme in Indonesia’s economy in the past years. The allure of
Chart 4.15 Chinese investors in Indonesia seem to be Indonesia’s mine-to-market industrial complex explains this
increasingly active while the practice of repatriating continued stream of foreign investments. At the same time,
funds as FDI inflows appear to be slowing 50.02
the heating geopolitical contest also seems to benefit
1.13 Indonesia, given the global competition to secure nickel or
FDI inflows to Indonesia (T12M), by investing countries:
China Singapore
other minerals deemed as the building blocks of the future
40 economy.
*Japan, South Korea, Malaysia, USA, Netherlands
Source: BKPM  Among the myriad of investors looking for opportunities in
14.54
Indonesia, none seem as aggressive as those from China,
whose dominance in the EV and renewable energy supply
chains increases its demand for minerals. This is a trend which
may continue in the longer run as the country continues to
build up its EV and other sectors’ production capacity.
20 14.88
 China’s growing share, however, have not displaced other
countries, whose FDI has also grown albeit not as rapidly.
Investments from the US, for instance, continue uninterrupted
despite the US government’s protectionist IRA programme. It
is true, however, that FDI from many of the smaller countries –
15.44
particularly tax haven countries – has been declining. This may
be a positive trend, as it could indicate that liquidity is flowing
0 to Indonesia from a more direct and transparent channel.
Q1 2016 Q3 2018 Q1 2021 Q3 2023
48
 FDI inflows may continue to be a ”growth positive” but
“liquidity neutral” event
300 Index, 2015 annualised  While news of foreign-backed infrastructure projects and
sum= 100 the fixed-asset investments component’s positive
Chart 4.16 Recent FDI into the Indonesian economy contribution to the GDP growth data is not hard to find,
do not seem to be reflected in BoP statistics as the the mark of FDI realisation in Indonesia is harder to find
255.9 from the point-of-view of domestic banks.
250 new investment probably does not transit through
the Indonesian financial system  Interestingly, our concerns about the widening gap
between BKPM-issued and BI-issued FDI data seem to only
intensify recently. We noted two possible explanations
200 regarding this development. First, the widening FDI data
gap may reveal the increasingly ‘liquidity-neutral’ nature
174.1
of foreign investments in Indonesia, as the investors may
realise their commitments by directly importing the
150
resources necessary for their projects in Indonesia –
capital goods and/or labour – which does not require
135.0
routing their money via Indonesia’s banking system.
 The widening FDI data gap could also serve as an
100 Financial account: Direct Investment indication that more foreign investors may be delaying
their projects in Indonesia. Such a case, then, may
BKPM: Direct Investment translate negatively to the investment prospect in the
Source: BKPM, BI future, meaning that the fixed-asset investment (FAI)
component’s contribution to growth may continue to rely
50
Q4 2015 Q4 2017 Q4 2019 Q4 2021 Q3 2023
on government projects.
49
 Strong investment growth may not immediately translate
to export growth
Chart 4.17 Some provinces find it difficult to improve their export competitiveness  So we finally come full circle to the matter of exports. Given
despite the considerable sum poured on SEZs and other infrastructure projects the still-aggressive FAI growth (whether foreign, private, or
150 Fixed-asset investments, 2023
public), is it possible that the CA deficit due to these
annualised (2019 = 100) investments would generate sufficient exports to eventually
close the gap?
East Kalimantan  Our answer is probably, in the long-run – but probably not, in
140
the short-term. If we break down recent FAI data by province,
there is no obvious correlation with export growth. This holds
Jambi
true even for provinces that have designated Special
130
West Kalimantan Bengkulu Economic Zones (SEZ). The trade-off between the strong
Riau Islands
North Sumatera investment growth and CA deficit (and accordingly IDR
North Sulawesi West Sumatera stability), then, remains a pesky problem for the foreseeable
120
Lampung future.
West Nusa East Java
Tenggara Aceh Indonesia  Of course, things are far more complex than this surface
Maluku analysis, and at some level – perhaps if we focus only on
110 DKI Jakarta East Nusa
Central Java foreign investment, or those in certain sectors or after certain
Tenggara
time lag – there is bound to be positive correlation.
Bali  It is also true that investment, especially public ones, are not
100
Designated Special Economic Zones meant to reap immediate dividend, but to lay the groundwork
Exports volume
growth, 2023
for future competitiveness. In this respect, then, the strong
Other provinces
West Papua (YoY, %) FAI growth does not just juice up growth in the short-term,
90
but may put Indonesia on the path towards continued strong
-80 -60 -40 -20 0 20 40 60
Source: BPS. Sample exclude North Maluku and Central Sulawesi growth in the future.
50
#5: Towards 2024
“A brisk walk in a dark alley”
 The big picture: Our scenario analysis in summary

SUPPLY SHOCK BASELINE DEMAND SHOCK

Commodity prices Higher Stable Lower
Fed policy High for longer Slight moderation Rapid cuts
Global demand Limited slowdown Limited slowdown Deep slowdown
Neutral or slight
Current account Narrow deficit Wider deficit
surplus
Rupiah exchange rate Some pressure Some pressure Less pressure
Stable or slightly
Inflation Slightly higher Stable
lower
BI policy rate Flat or slight hikes Flat or slight cuts Rapid cuts

52
Domestic demand Robust Flat or slight slowdown Moderate slowdown
 The big picture: Our scenario analysis in summary
 Geopolitical escalation  US recession  Indonesia’s economic prospects in 2024 would remain
buffeted by strong winds from the global economy – be it
 Energy/food crisis  China stimulus falters
from the supply- or demand-side.
Supply shock Demand shock  The prospect of a global supply shock may seem much-
reduced compared to 2022, but given the pre-existing
geopolitical fissures and diminished capacity on the US’
part to intervene in the energy market via SPR release, we
cannot be so sure.
 Fears of a demand shock, meanwhile, has become the
more dominant concern, as China is rocked by troubles in
its property sector while the market is skeptical that the US
will continue growing as well as it has in 2023.
 We continue to expect Indonesia to perform better vis-à-
vis global, thus dampening the impact of these global
shocks. One key reason is the Elections during H1-23, in
which increased spending may ultimately carry the day
despite what might happen abroad.
 Widespread crop  Weaker consumption in  Nonetheless, there are still certain pressures within the
failures/ food crisis the post-Election period Indonesian economy – as we have discussed in the pre-
 Slower CAPEX growth vious four chapters – that might manifest itself in 2024,
both in terms of consumption and also investment.
53
 Baseline scenario (estimated probability: ~50%)
Ship-shape, despite some hitches
Main assumptions: Indicator 2024E
Global aggregate demand slows, but at measured pace – as does inflation. This soft landing enables the Oil Price 86.9
Fed to enact some policy easing: ending QT (surely), but also potentially cutting the Fed funds rate by 25-
Fed Rate (eop) 5.00%
75 bps.
Real GDP YoY 5.03%
Meanwhile, global appetite for commodities remain quite robust as China’s economy stabil-izes from its
recent turmoil. CPI Inflation YoY 3.21%
On the domestic front, the pattern we saw in 2023 (limited slowdown in consumption, still-robust BI Rate (eop) 5.50%
investment growth) continues in 2024, with Election effect giving a nice “cherry on top” for Indonesian USD/IDR (eop) 16,150
growth prospects.
CA (% GDP) -0.53%

 Growth outlook: Slowing global demand could drag on Indonesian growth somewhat, but Indonesia continues to over-perform thanks to its status
as an attractive destination for FDI, plus strong investment on the part of the domestic private sector (especially in energy, metals, and some
manufacturing) and the government (new capital city and other remaining projects). Some moderation of consumption after the Election is
expected, but not enough to suppress real GDP growth below the customary 5% YoY pace.
 Inflation outlook: Some acceleration in inflation, especially from volatile food, is unavoidable, but will be balanced by relatively mild inflation
globally.
 CA outlook: Indonesia’s stronger growth vis-à-vis global ensures that some CA deficit remains, but China’s stabilisation puts a relatively high “floor”
on our terms of trade.
 Rates and Rupiah outlook: The CA deficit and robust financing demand ensures that BI stays cautious and only ease policy in line with the Fed.
Some pressure on Rupiah will persist and may flare up from time to time, but the medium-term trajectory is still a gentle downslope rather than an
abrupt cliff.
54
 Demand-shock scenario (estimated probability: ~35%)
A gap year for growth
Main assumptions: Indicator 2024E
Global aggregate demand slows dramatically, causing a recession in the US and many other countries – Oil Price 76.6
including potentially China, whose current manufacturing-led growth strategy greatly depends on
Fed Rate (eop) 3.75%
continued export strength.
Real GDP YoY 4.71%
Commodity prices languish further, but the resulting deflationary environment – on top of greater
stresses in the financial market – enabled the Fed to ease policy more drastically. CPI Inflation YoY 2.72%
For Indonesia, the global slump is paralleled by sharp declines in private sector spending, in large part due BI Rate (eop) 4.50%
to loss of appetite for CAPEX. Fiscal support post-Elections are also limited by weak commodity revenue USD/IDR (eop) 15,604
and a general pullback before the start of a new government.
CA (% GDP) -1.38%

 Growth outlook: Looking at previous crises, the growth impact of commodity shocks is generally bigger than that from financial shocks. In
particular, we see the private sector’s overall balance sheet – with negative NBB for the past year – as ripe for potential reversal, and further export
weakness might serve as a signal that finally drive spending cuts. Nonetheless, the early-year Election effect, plus the easier monetary policy
enabled by a more stable Rupiah, would allow for more import-driven consumption growth.
 Inflation outlook: Further global deflation is the most likely outcome of weak global demand, especially amid persistently excessive output from
China.
 CA outlook: Low prices for Indonesia’s export commodities plus a more stable Rupiah is generally a recipe for a wider CA deficit, although the
success of the down-streaming programme probably moderates the worst-case CA deficit from 2-plus % to around 1-plus %.
 Rates and Rupiah outlook: More aggressive Fed rate cuts easing, probably telegraphed quite early in 2024, would weaken the USD and allow BI to
also assume a much more dovish policy posture. And given the extent of tightening in 2022-23 (250 bps hike in BI-7dRR, on top of 550 bps hike in
RRR), the room to ease is quite substantial indeed.
55
 Supply-shock scenario (estimated probability: ~15%)
Higher highs and lower lows
Main assumptions Indicator 2024E
Global aggregate demand slows only marginally, and it is overtaken by shocks on the supply-side. Oil Price 123.6
Geopolitical flareups are the easy culprit du jour, but there are arguments for energy shocks – notably from
Fed Rate (eop) 5.50%
OPEC+ production cut – and climate-induced food shocks.
Real GDP YoY 5.12%
The inflationary shock may preclude any easing (bar ending QT) on the Fed’s part, and the US yield curve
will probably experience bear steepening – causing stronger USD and weaker asset valuations across the CPI Inflation YoY 3.95%
globe. BI Rate (eop) 6.00%
Indonesia has seen its fair share of similar shocks in recent years, from coal to cooking oil (CPO) to rice, and
USD/IDR (eop) 18,260
they are almost entirely connected to a wider global story.
CA (% GDP) +0.32%

 Growth outlook: Commodity price increase is generally a boon for Indonesian growth, so long as the authorities are able to manage the multitude
side effects that might appear. A 2022-level commodity boom, for instance, can drive up potential growth to 5.6 – 6.0% as per our estimates – but
whether or not this potential is achieved is another issue entirely. The Election mood does mitigate against a potential fuel price hike that could kill
the growth momentum, but potentially tight(er) BI policy could crimp borrowing outside of commodity-adjacent areas.
 Inflation outlook: If it persists long enough, high global prices would eventually translate to domestic inflation. But in the short-term, the
government can prevent this via subsidies, price controls, or other mechanisms – which will likely be deployed amid an Election year.
 CA outlook: The situation in 2021-22 shows that Indonesia can still attain CA surplus, but only if the terms of trade is exceptionally favourable.
 Rates and Rupiah outlook: Like in 2022, CA surplus does not necessarily translate to stronger Rupiah if capital keeps leaking out, due to non-
repatriation and inflows to safe havens. The more likely scenario here, then, involves BI holding still or even potentially tightening again.

56
 Projections of macroeconomic indicators

2019 2020 2021 2022 2023E 2024E

GDP growth
5.02 -2.07 3.69 5.3 5.1 5.0
(% YoY)

GDP per capita (USD) 4,175 3,912 4,350 4,784 4,982 5,149

CPI inflation
2.59 1.68 1.87 5.5 2.8 3.2
(% YoY)

BI 7-day Repo Rate (%) 5.00 3.75 3.50 5.50 6.00 5.50

10Y government debt

7.04 5.86 6.36 6.17 6.68 6.79
yield (%)

USD/IDR exchange rate 13,866 14,050 14,262 15,568 15,728 16,037

Trade balance
-3.2 +21.7 +35.3 +54.5 +34.9 +32.6
(USD Billion)
Current account balance
-2.71 -0.42 +0.28 +1.00 -0.4 -0.5
(% of GDP)

Source : BPS, Bloomberg, BCA Economist calculations

Notes:
Scan for the link to our
- BI 7-day Repo Rate, 10Y yield, and USD/IDR exchange rate all refers report depository or click:
to end of year position
- 10Y yield and USD/IDR exchange rate projections refer to bca.co.id/riset
fundamental values; actual market values may vary depending on
sentiment and technical factors
 Economic, Banking & Industry Research Team

David E.Sumual Agus Salim Hardjodinoto Barra Kukuh Mamia

Chief Economist Head of Industry and Regional Research Senior Economist
david_sumual@bca.co.id agus_lim@bca.co.id barra_mamia@bca.co.id
+6221 2358 8000 Ext:1051352 +6221 2358 8000 Ext: 1005314 +6221 2358 8000 Ext: 1053819

Victor George Petrus Matindas Gabriella Yolivia Lazuardin Thariq Hamzah

Senior Economist Industry Analyst Economist / Analyst
victor_matindas@bca.co.id gabriella_yolivia@bca.co.id lazuardin_hamzah@bca.co.id
+6221 2358 8000 Ext: 1058408 +6221 2358 8000 Ext: 1063933 +6221 2358 8000 Ext: 1071724

Keely Julia Hasim Elbert Timothy Lasiman Thierris Nora Kusuma

Economist / Analyst Economist / Analyst Economist / Analyst
keely_hasim@bca.co.id Elbert_lasiman@bca.co.id thierris_kusuma@bca.co.id
+6221 2358 8000 Ext: 1071535 +6221 2358 8000 Ext: 1007431 +6221 2358 8000 Ext: 1071930

Firman Yosep Tember Aldi Rizaldi

Research Assistant Research Assistant
firman_tember@bca.co.id aldi_yanto@bca.co.id
+6221 2358 8000 Ext: 20378 +6221 2358 8000 Ext: 1020451

PT Bank Central Asia Tbk

Economic, Banking & Industry Research of BCA Group
20th Grand Indonesia, Menara BCA
Jl. M.H Thamrin No. 1, Jakarta 10310, Indonesia
Ph : (62-21) 2358-8000 Fax : (62-21) 2358-8343

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