World Bank: Indonesia's economic growth will continue to decline

06 September 2019 07:14

JAKARTA. World Bank research entitled "Global Economic Risks and Implications for Indonesia" projects that Indonesia's economic growth will continue to decline. It also projects an increase in the current account deficit (CAD) and a global economic slowdown that will trigger a greater capital outflow

"Indonesia's GDP growth will continue to decline due to weak productivity and slowing labor growth," explained the World Bank.

In addition, the decline in world commodity prices will also further pressure the Indonesian economy. The World Bank illustrates that each one percentage point decline in the Chinese economy, will cause a decline in Indonesian economy by 0.3 percentage points.

The global economic slowdown, coupled with the continuing trade wars of the United States (US) and China, the potential for the US economic recession, as well as the weakening of the European and Chinese economies, are seen by the World Bank as the factors that can trigger a larger capital outflow. "This could cause Indonesia's reference rates to rise again and the rupiah to depreciate deeper," he continued.

Capital outflow becomes increasingly dangerous because until now, Indonesia is still experiencing a current account deficit (CAD). In the second quarter of 2019, Indonesia's CAD reached US$ 8.4 billion or 3% of GDP. This deficit rose from US$ 7 billion (2.6% of GDP) in the first quarter.

The World Bank projects that Indonesia's CAD at the end of 2019 will be US$ 33 billion, up from the previous year of US$ 31 billion. Moreover, Indonesia's FDI growth is also sluggish. This year, the World Bank estimates that Indonesia's FDI can only reach US$ 22 billion.

With this condition, the World Bank estimates that at least US$ 16 billion per year of external financing is needed to cover the deficit. (AM/AR)

© 2023 - IDN Financials - All Rights Reserved.