Rebound Promises Improvement
Executive Summary
Q3 economic performance maintained its dynamism, according to corporate analyses released so far. Several of these reports chronicle continuing growth, bolstered by spending linked to the Ramadan celebrations (Ramadan shifts from year to year, and this year ran from July 8-August 7, slightly earlier than in 2012).
The Indonesian Composite Stock Market Index has regained its vigor, stabilizing at around 4,500 after sharply recovering at the end of September. This stability renewed hopes that the market could rebound to 5,000 – a level last seen in May – before year-end. The rupiah also consolidated its gains, and is approaching Rp. 11,000 – a powerful recovery from its weakness in August and early September. This climate offered a semblance of certainty to much of the Indonesian corporate world.
Inflation trends are benign. In September, inflation was negative, down 0.35% m/m, and was running at 8.4% y/y. Inflation may end the year below 9.2%. In response to these indicators, Bank Indonesia, at its last policy meeting in early October, kept its benchmark rate at 7.25%.
The external picture is likewise sunny: the trade balance turned in a small surplus in August. While exports dropped to $13.16 billion, imports dropped even further, to $13.03 billion, creating a surplus of $130 million. However, the reduced trade figures were the result of fewer working days in September, so it’s difficult to count on the persistence of this surplus.
More meaningful was the Central Bank’s announcement of rising FX reserves, to over $95 billion, a reversal from the steady reserve drop of the previous months. There was also good news on the investment front: FDI broke records, coming in at over Rp. 100 trillion (about $900 million).
Many players seem optimistic over the medium and longer-term horizon. Nissan Motor Co. CEO Carlos Ghosn corroborated this sentiment by deciding to invest in new factories: Nissan is raising production targets to 155,000 vehicles per year, from 55,000. Ghosn believes Nissan could increase its Indonesian market share to 15% from the current 6% within three years.
Given this backdrop, we think the economy may still grow by more than 5% for 2013. We’re keeping our earlier projection of 5.5%-6.3% growth intact, but weighted toward the bottom of the range. And the prospect of stronger growth in 2014 is certainly on the horizon.
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