Target of 5.4 Percent in 2018
A man walking near the share movement electronic board at the Indonesian Stock Exchange in Jakarta on Monday. In Monday’s trading, the capitalization of the BEI market managed to reach a record high of Rp 6,602.7 trillion.
JAKARTA, KOMPAS — The global economic recovery will strengthen and expand next year. This will reduce some short-term risks. Along with some domestic positive sentiments, the situation is expected to drive economic growth in 2018.
The positive sentiment is also driving the Jakarta Composite Index (JCI). Yesterday, the JCI reached a new record high of 6,025. The market capitalization of Rp 6,666 trillion was also a new record.
“Next year, the driving factors of the economy will be stronger than the potential risks,” Finance Minister Sri Mulyani Indrawati told Kompas after a press conference on the 2018 State Budget in Jakarta on Wednesday (25/10).
The driving factors referred to are, among other things, a more even global economic recovery, the most even in the last decade. The driving factors are investment, consumption and trade.
Referring to the World Economic Projection released by the International Monetary Fund in mid October, around 75 percent of the global economy is experiencing economic growth improvement. This situation is occurring in developing and developed countries. The situation is also occurring in export destination countries such as the United States, China, Japan and India.
However, some factors present risks, such as US monetary policy normalization, China’s policy on a new equilibrium, the low prices of some commodities, symptoms of protectionism and increasing geopolitical tensions.
Nevertheless, such risks are compensated with strong economic recovery. Therefore, the projected global economic growth will strengthen in 2017 and 2018 after reaching the weakest point since the global financial crisis in 2007-2008 at 3.2 percent in 2016. In 2013-2015, economic growth was stagnant at 3.4 percent.
IMF-projected global economic growth in 2017 and 2018 increased to 3.6 percent and 3.7 percent. The projection in October increased by 0.1 percent compared to the projection in April 2017.
The global situation is in line with domestic economic growth. This year, the Finance Ministry projected economic growth of 5.17 percent or higher than last year’s realization of 5.02 percent. The lowest economic growth since the 2007-2008 global financial crisis was 4.79 percent in 2015.
For next year, the government and the House of Representatives have agreed a target of 5.4 percent or slightly higher than the IMF projection of 5.3 percent. This agreement is part of the basic assumption in the 2018 State Budget, which was passed into law yesterday.
Investment
To achieve economic growth of 5.4 percent in 2018, Sri Mulyani said the government expected the growth of household consumption to be stable at over 5 percent. The growth of export, which has been visible since the second half of 2016, is expected to continue through next year. Investment is expected to inch closer or to exceed 6 percent, better than the investment growth of around 5 percent in the past few years.
The state budget as another source of economic growth, Sri Mulyani said, is also getting stronger. It is shown with the declined deficit and the increased economic growth target.
The 2018 State Budget targets a deficit of 2.19 percent of gross domestic product, and economic growth of 5.4 percent. This year, the deficit target is 2.92 percent and the economic growth target is 5.2 percent. This means the debt to GDP ratio next year will decrease.
Meanwhile, investment as the biggest economic growth component after household consumption has been facing severe pressure in the past three years due to falling commodity prices and negative export growth, said Sri Mulyani.
That leads to an increase in the ratio of non-performing loans in banks. Consequently, banks and business players cannot carry out expansion. In 2015-2016, banks and business players restructured their balance.
“Thus, the growth of banking credit is slowing down. However, since August, the NPL has declined. That means banks have room to channel credit. Meanwhile, companies are becoming healthy and may apply for credit,” she said.
Separately, Yogyakarta-based Gadjah Mada University center for economy and public policy head A Tony Prasetiantono said there are no surprises in the 2018 State Budget. The figures in the 2018 State Budget are normal and conservative, with the budget deficit to GDP ratio at 2.19 percent.
New record
Yesterday, the JCI rose 73.358 points or 1.23 percent to 6,025. Since early this year, the JCI has grown by 13.76 percent. The JCI has grown by 56.09 percent over the past five years.
Indonesia Stock Exchange president director Tito Sulistio said that achievement is because of investors’ trust in the government and in the economy. “This shows there is trust in the government and in the Indonesian stock exchange,” Tito said.
The increase of the JCI was also supported by the performance of publicly listed companies. Several listed companies have released their financial reports for the January-September 2017 period, mostly booking annual profit.
Danareksa Sekuritas analyst Lucky Bayu said the daily JCI performance tends to strengthen. “The index is in a growing trend,” he said.
Responding to the JCI’s record high, Sri Mulyani said it was caused by several factors. They are, among other things, the fundamental factors such as the general condition of the listed companies, especially the health of the companies. If the companies are in good condition, it will bring positive trends.
However, the JCI can also be driven by perception. At home, the government is expected to be consistent in maintaining the economic growth momentum by giving a positive sentiment.
“From all those factors, production or demand, the momentum is so visible. If we take into account the works of the government, such as license simplification, deregulation and service improvement for business players, then this momentum can create a positive perception that will affect the index. Of course, there are external factors that also have an influence,” Sri Mulyani added.
(LAS/JOE/IDR)
