Consumption Condition in Indonesia - Macroeconomic Analysis

Athalia Mutiara - 19717077

Nadya Sahara P - 19717138

Aqmalia Shafira D – 19717060

Macro Economic Assignment

Analyse the reading attached using macroeconomic analysis:

1. Consumption, investment, Government spending and Net exports

The Indonesian government will rely on three sectors to drive the country's economy in 2018, namely investment, consumption, and exports. Challenges, however, still remain as the country will hold simultaneous local elections in 2018 which will increase political tensions ahead of a national election in 2019.

• Consumption Condition in Indonesia

Central Bureau of Statistics (BPS) recorded household consumption in quarter I-2018 was below 5%, or precisely at the level of 4.95%. The share of household consumption has contributed to the economic growth of 56.80%. While on the expenditure side, household consumption is again in the spotlight. The growth of household consumption is still relatively weak, below 5%. In the first quarter of 2018, household consumption grew only 4.95%. Almost no move compared to the same period in 2017 that is 4.94%. Since the fourth quarter of 2016, household consumption has not been able to grow above 5%.

Rodrigo said there was no increase in private consumption growth as household consumption slowed slightly. Though household consumption is mostly spent in restaurants and hotels. Not only that, the World Bank also saw retail sales, car and motorcycle sales also weakened. Although the index of consumer confidence strengthened. World Bank also this year projected economic growth of Indonesia this year at 5.1%. That projection is lower than the previous World Bank estimate of 5.2%.

The reason is, other BPS data says that most workers in Indonesia work in the agricultural sector, which reached 30.46%. It occupies the first position, followed by trade (18.53%) and manufacturing industry (14.11%). As growth in the agricultural sector slows down, it affects the income of the people working in the sector. And keep in mind, workers in the agricultural sector are the majority in Indonesia. When employment matoritas income in Indonesia is disrupted, then the overall consumption would be disrupted. This is why consumption has not been able to grow faster, because there are problems in the agricultural sector.

• Investment in Indonesia

To meet the targets, the government continues to push for investment and infrastructure for growth and equity in various regions in Indonesia, including Maluku, Papua, Kalimantan, Sulawesi, Bali and Nusa Tenggara. The investment financing is prepared by the government under the leadership of President Joko Widodo (Jokowi) to support infrastructure development and UMKM. As reported by the Ministry of Finance (Kemenkeu) data, from 9 investment financing made by the government, the total value reached Rp63, 6 trillion.

Interest rates are a very important factor in attracting investment because most investments are usually financed from bank loans. If the loan interest rate falls then it will encourage the investor to borrow capital and with the loan capital then he will make an investment. Therefore, with the low interest rates the Indonesian government is taking action to make long-term investments, such as the press conference on the state budget's performance for last year, the minister revealed that the government's capital spending increased by 22.9 percent to Rp 208.4 trillion ($ 14.6 billion). Most of this was directed towards the construction of new highways, bridges, airports and 618 kilometers of railway networks. Sri Mulyani highlights economic growth for 2017. She said President Joko "Jokowi" Widodo's administration is committed to boosting infrastructure spending to stimulate growth.

• Government Spending in Indonesia 2017-2018

Total spending in early 2018 is claimed to be better than last year, but most of the expenditure is still used to pay interest on debt. Quoted from the realization of Budget Revenue and Expenditure (APBN) 2018, Thursday (22/2/2018), in January 2018 total expenditure used to pay interest debt worth Rp23, 17 trillion. The amount is equivalent to 9.7% of total interest debt to be paid in this year, which amounted to Rp238, 6 trillion. "As spending on poverty and inequalities amounts to Rp 283.7 trillion, consisting of social protection programs, the expansion of non-cash food aid (BPNT), health services and education of Indonesian smart programs," said Askolani at the Ministry of Finance, Jakarta, Wednesday (25/10). For infrastructure expenditure amounting to Rp 410.7 trillion, consisting of road construction reaching 865 Km, irrigation development reaches 781 Km, electrification ratio of 95.15 percent, and construction of 13,405 units of flats.

For the leading sector of Rp 34.8 trillion. Consists of agriculture, namely to increase food production and development of infrastructure and the development of horticulture. Tourism, is devoted to the development of 10 tourist destinations, increased tourism, and tourism promotion. "Also fisheries, namely to increase the competitiveness of processed fishery products, fishing boat assistance 1,048 units, and environmental sustainability." In the field of state apparatus and community services amounting to Rp 365.8 trillion, will be strengthened bureaucracy reform to improve the quality of public services , improving the welfare of the state apparatus and pensioners, and reforming the state apparatus pension scheme for the foreseeable future. Meanwhile, in defense and security sector, Rp 220.8 trillion will be procured by defense armaments for the needs of state defense forces, followed by the development of the defense industry, as well as improving the maintenance of security and order.

• Net Exports in Indonesia

There is a potential weakening affecting the decline in GDP growth. The enormous net rate calculation in maintaining economic growth remains at the 5% level by 2017 when household consumption growth is below 5%. a drop in trade surplus in the first quarter due to widening deficits in the oil and gas sector. This can not be separated from the increase in the price of the world that actually increases the import of oil import countries like Indonesia. Not only oil and gas sector, non-oil and gas sector also trade surplus shrank to USD3 billion. Yet in the same period last year (year on year / yoy) trade surplus reached USD6, 7 billion. The decline in trade surplus around non-oil and gas due to slow manufacturing exports in the first quarter of 2018 which only 4.6%. In addition, agricultural exports fell drastically from 22% in 2017 to 10% in the first quarter of 2018. as non-oil and gas export growth weakened, non-oil and gas imports increased sharply. Recorded, in the first quarter of 2018, non-oil and gas imports to 24% from the previous which only 7%. Increase in non-oil and gas imports driven by many consumer goods and capital goods. In the first quarter imports of consumer goods rose 2.7% in the first quarter of 2017 to 21.8% in the first quarter of 2018.