Indonesian Economy Outlook 2018 in the Midst of Political Year

December 22, 2017 by : superadmin-ipief

Yogyakarta—It is apparent that the global economy has been showing the sign of gradual recovery during the initial quarter of 2016 to the second quarter 2017. The largest world economy, US, saw a steady growth of its economy which was 2.2 percent in the second quarter of 2017 so that it is predicted by World Bank that US economy will probably grow to 2.9 percent next year while China which seemed to have a constant growth throughout 2017 at 6.9 percent is projected by International Monetary Fund (IMF) to grow at 6.5 percent. Such macroeconomic condition is important to foresee the future condition of Indonesian economy that experienced a sluggish growth and is expected to rise to 5.1 percent in 2018.

 The previous address was delivered by Bhima Yudhistira Adhinegara, Researcher at Institute for Development of Economics and Finance (INDEF), in IPIEF Dialogue and Intellectual Discourse (IDEAS) hosted by Islamic Economics Student Association (IESTAC) on December 19th 2017. Taking place in Amphitheater 5th KH Ibrahim Building, this agenda was attended by students of Department of Economics and International Program for Islamic Economics and Finance (IPIEF).

“When predicting Indonesian economy as one of emerging economies in the next year, we have to analyze carefully the commodity price including crude oil, coal as well as gas due to its crucial role in determining our national economy. If the commodity price is rising, the economic condition seems to thrive,” said Bhima when emphasizing the importance of commodity in projecting macroeconomic condition.

In his speech, Bhima also explained extensively several daunting challenges Indonesia economy has to confront in the next year, encompassing the modest growth of national industry particularly manufacture and agriculture sector despite the enhancement of other sectors, the significant improvement of service sectors that may lead to an early deindustrialization and followed by demography bonus which can be either a disaster or opportunity. He also added, saying: “Manufacture and agriculture sectors hit the low level while the service sectors have rapidly grown. It can be argued that such a condition may result in a higher unemployment since the service sector does not need the huge number of workers to be employed. As a result, it may exacerbate the current economic environment.”

“Indonesia is now left behind in terms of competitiveness index compared to Malaysia and Singapore; both are in the same region as Indonesia. Moreover, Indonesia has also faced the considerable decrease in consumption as many retails companies continue to close their stores in recent years. Many argued that such a phenomenon is shifting consumption since the society seems to buy everything online, but I feel doubt about that statement.  The reasonable argument that can be deployed is that perhaps it is right there is an increase in online transaction, however the share of E-commerce compared with total national retail is less than one percent. So, it might be inaccurate to state that there is shifting consumption from retail to e-commerce,” Bhima emphasized the issues associated closely with the latest condition. According to him, an increase in tax is the primary reason why society seems to reduce the consumption.

To foresee the Indonesian economy, it is inevitable to consider the recent geopolitical circumstance: Tax reformation in US by Trump, Political instability in the Middle East, Catalonia independence, and the nuclear conflict between North Korea and the US. Those factors are regarded crucial because of the interdependence between political situation and economic stability. Meanwhile, the domestic situation will play pivotal role in determining 2018 economic condition as there will be an increase in the commodity price and fiscal stimulus in the form of Dana Desa and Bansos. [Aw]

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