ndiamé diop lead economist (indonesia) indonesia banking conference december 11, 2014 recent...
TRANSCRIPT
Ndiamé DiopLead Economist (Indonesia)
Indonesia Banking Conference
December 11, 2014
Recent developments and economic outlook for 2015 World Bank IEQ Delivering change
Introduction: delivering change
Recent economic developments: a challenging backdrop
2
Way out of subdued economic growth?
Conclusions
Near-term economic outlook: relatively subdued
3
Global economy still expected to pick-up, but at a slower pace than previously expected
World
High-income countries
Developing countries
-0.6 -0.5 -0.4 -0.3 -0.2 -0.1 0
2015 2014
Source: World bank EAP Update, October 2014; World Bank staff calculations
Difference between April 2014 and October 2014 World Bank growth projections, percentage points
4
Too soon to tell if recent oil price decline will provide decisive support to trade balance
Note: Major commodities are coal, copper, LNG, palm oil, petroleum products (including crude oil) and rubberSource: World Bank Commodity Prices and staff calculations
(US Dollar price indices, 2008=100)
Nov-08 Nov-09 Nov-10 Nov-11 Nov-12 Nov-13 Nov-140
20
40
60
80
100
120
140
Major commodity ex-ports (excl. oil)
Brent crude oil
Terms of trade for major commodities
External balance still in focus
5
Contributions to export value growth yoy, percentage points)
Source: BI; World Bank staff calculations Source: BI; World Bank staff calculations
Balance of payments main account balances, USD billion
-15
-10
-5
0
5
10
15
20
Current account Direct investment
Portfolio Other investment
Overall balance
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
-15
-10
-5
0
5
10 Non commoditiesCommoditiesExport value
Domestic and external financing conditions have tightened in recent months
Quarterly net increase in private non-financial sector credit, IDR trillion
6
Credit growth yoy, percent
Source: BI; World Bank staff calculations Source: BI; World Bank staff calculations
Sep-12 Mar-13 Sep-13 Mar-14 Sep-140
5
10
15
20
25 Bank credit
Jun-13 Dec-13 Jun-140
40,000
80,000
120,000
160,000Foreign currency debtDomestic creditDomestic bonds
Some banks have been facing funding constraints and a deterioration in asset quality
Bank profitability and asset quality, percent
7
Deposit growth yoy and time deposit interest rate, percent
Source: BI; World Bank staff calculations Source: BI; World Bank staff calculations
Aug-11 Aug-12 Aug-13 Aug-14-5
0
5
10
15
20
25
30
35
-2
0
2
4
6
8
10
Demand deposit growthTime deposit growth3-month time deposit rate (RHS)
0
1
2
3
4
5
6
Non-performing loans
Net interest margin
Weaker investment and exports drive the continued economic slowdown
8
Real annual growth rate, percent
Source: BPS; World Bank staff calculations
Fixed investment Exports-4
-2
0
2
4
6
8
10
12
14
16 2011 2014p
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
0
1
2
3
4
5
6
7
8EAP (excl. China) Indonesia
Annual growth, percent
Source: World Bank
Introduction: delivering change
Recent economic developments: a challenging backdrop
Near-term economic outlook: relatively subdued
9
Delivering change: 3 focus areas
Conclusions
Is the investment cycle turning around?
10
Contributions to import growth yoy, percent
Source: BPS; World Bank staff calculations Source: BI; World Bank staff calculations
Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14-8
-6
-4
-2
0
2
4
6Capital goodsFuelRaw material nfConsumer goodsImports
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
50,000
100,000
150,000
200,000
250,000Budget
revised Budget
Actual
Ambitious infrastructure plans: crucial for long-term growth but implementation challenges
11
Note: current IDR Source: MoF
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
0
10
20
30
40
50
60
70
80
90
1002011 2012
2013 2014
2011 2012
2013 2014
Budget, revised budget and actual central government capex, IDR trillion
Monthly central government capex, IDR trillion (bars, LHS) and percent of total (lines, RHS)
Note: current IDR Source: MoF
Inflation to increase following the subsidized fuel price increase, but only temporarily
12
Quarterly and average annual inflation, percent yoy
Note: Dark bars indicate projected average annual inflationSource: BPS; World Bank staff calculations
Mar-13 Mar-14 Mar-15 Mar-160
1
2
3
4
5
6
7
8
9
6.47.5
5.2
The near-term economic outlook is expected to remain fairly subdued
13
Source: MoF; BPS; BI; World Bank projections
December IEQ Revisions
(percentage change, unless otherwise indicated) 2013 2014p 2015p 2016p 2014 2015
Real GDP 5.8 5.1 5.2 5.5 -0.1 -0.4
Consumer prices 6.4 6.4 7.5 5.2 0.6 2.6
Current account balance (% of GDP) -3.3 -3.2 -2.8 -2.8 -0.3 -0.4
Fiscal balance (% of GDP) -2.3 -2.3 -2.0 - 0.5 -
Introduction: delivering change
Recent economic developments: a challenging backdrop
Way out of subdued economic growth?
14
Near-term economic outlook: relatively subdued
Conclusions
Main risks to outlook: external environment and domestic policy agenda and execution
15
External Domestic
Positive- Lower than forecasted
international oil prices
- Reform agenda delivers early success; investment and growth rise more quickly than expected
Negative
- Slower than currently projected global recovery
- Weaker than base case commodity price trajectory;
- Tighter than expected external financing conditions
- Limited reform and implementation (capital expenditure execution), and impact on growth is slower to materialize
Greater export performance…
16
Source: BIS; BPS; World Bank staff calculationsMar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14
18.5
19.0
19.5
20.0
20.5
21.0
21.5
22.0
22.5
23.0
23.5
90
95
100
105
110
115
120
125
Manufacturing exports
REER
(Quarterly manufacturing exports, USD billion; Real effective exchange rate (REER), 2010=100)
Raising the game in tourism
Country Number of tourist arrivals (million)
Tourism receipts (Billion US$)
Indonesia 8.8 9.3
Singapore 11 19
Malaysia 25.7 21
Thailand 26.5 42
Sustaining manufacturing export
…more FDI…
FDI Port. Equity Inflows
Port. Debt inflows
Other inv, inflows
0
1
2
3
4
5Average
St. dev
Coeff. of variation
Source: BI; World Bank staff calculations Source: BI; WB GEP January 2014; WB staff calculations
Some sources of funding are more stable than others…(quarterly inflows, USD bn, Q3 2008 – Q3 2014 )
…and the capital flow composition determines vulnerability to global shocks(response to tightening of global financial conditions, USD bn)
17
2009 2010 2011 2012 2013 2014f 2015f 2016f0
5
10
15
20
25
30
35
40
45Capital inflows - baseline
Capital inflows - shock
…to reduce tightening conditions
18
Source: CEIC; JP Morgan; World Bank staff calculations
Financial conditions index and the variables driving it, growth yoy, percent
Tighter financial conditions hand in hand with growth moderation (real GDP growth yoy, percent; FCI index)
Source: CEIC; JP Morgan; World Bank staff calculations
-4
-3
-2
-1
0
1
2
3
4
0
1
2
3
4
5
6
7
8
FCI
Real GDP growth, RHS
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0 BIR Lending rate creditJCI REER EMBIGFCI
Conclusions • Optimistic time for Indonesia • But data show challenging
economic realities:• Slower investment, weak
exports• The bold steps of the kind the
government has signaled in its first few months are very needed, to support growth and poverty reduction
• It will take implementation, and potentially some time, for the benefits to flow through