GAMA Leading Economic Indicator
Indonesian business cycle if approached using the quarterly GDP for 2000-2012 period, shows a highly fluctuating trajectory. The movement of GDP business cycle was well predicted by GAMA Leading Economic Indicator (LEI). GAMA LEI are able to predict the point at which a business cycle of an economy starts to change course.
During the 2008 global economic crisis, using GAMA LEI signs of an economic changing course in the third quarter 2007 was able to predict the deterioration in the performance of the Indonesian economy in third quarter 2008. Subsequently, GAMA LEI signs of changing course in the first quarter 2009, succeeded in predicting improvement in the performance of the Indonesian economy in the fourth quarter in 2009.
Figure 21: GAMA Leading Economic Indicators
GAMA LEI in the second quarter 2012 shows a change in course, which was followed by deterioration in performance or a change in course in the movement of the business cycle in the third quarter 2012. GAMA LEI shows a downward trend until the last quarter 2012, an indication that Indonesian is showing signs of weakening.
In the beginning of the first quarter 2013, it is predicted that business cycle or Indonesia economic performance point to a weakening. This is the case because based on GAMA LEI signals or projections, there are no indications that the economy will improve since the fourth quarter 2012. The expectation is that policy makers in the government and private sector use GAMA LEI signals of a weakening economy until the fourth quarter 2012 to implement strategies that will stave off an economic downturn at the beginning and middle of 2013.
Macroeconomic Indicators Projection
In a survey that involved several respondents who were drawn Lecturers in the Faculty of Economics and Business, UGM, provides a picture on the prediction of GDP growth, inflation, and exchange rate of Rupiah against US dollar, from Q1 2013 until 2014. Predictions of real GDP growth (YoY) point rather a pessimistic note. Prediction for I and II quarter , 2013 , indicate that real GDP growth will be 6.17% and 6.21 %, respectively, as shown in Table 5. Meanwhile, GDP growth for 2013 and 2014, is predicted to be 6.32% and 6,3%, respectively. Inflation (YoY) forecasts in general point to an increase. Prediction of inflation for the first quarter and second quarter 2013 based on survey outcome shown in Table 6, will be 4.46% and 4.52%, respectively. Meanwhile, inflation for 2013 and 2014 is predicted to be 4.67% and 4.88%, respectively. As regards exchange rate of Rupiah against US dollar for the I and II quarter 2013, predictions point to IDR 9,738 and IDR 9,776, respectively. Meanwhile, the Rupiah/USD exchange rate for 2013 and 2014, is predicted to be IDR 9,704 and IDR 9,765, respectively.
Economic Outlook
The beginning of 2013 has been characterized by a host of political issues, which underscore what to many is already an open secret that the year of politics has dawned on Indonesia, notwithstanding the reality that the conduct of elections is still more than a year away. Doubtless, some serious concern is being raised that heightening of political temperature and tension will someway have an adverse impact on economic and financial conditions in Indonesia, by for instance distracting the concentration of government official from carrying out their duties and functions, which in turn will undermine the effectiveness of economic policies in Indonesia. Such worries are not entirely misplaced given the reality that developments in the global economy at the beginning of 2013 are far from pleasant. In European economic region, the Euro zone experienced contraction (0.9%) in the fourth quarter 2012, while US could only post 1.5% growth. Moreover, the Euro zone is still facing serious problems, which if coupled with the regime of rising taxes and budget austerity in US point to a global economy that will continue to register anaemic growth at best. Meanwhile, economic growth in China and India has slowed. To that end, the global economy is predicted to weaken. The weakening of the economy compounded with uncertainty in the global economy will impact negatively on Indonesian economy.
International factors will continue to depress the economy through trade, foreign investment or financial markets, and domestic conditions which are not yet to provide conducive climate for business and investment will no doubt exert serious pressure on macroeconomic stability and economic growth. In that backdrop, we predict that Indonesian economy will continue to face downward pressure, an indication that a full-fledged economic recovery is still far off. Inflation is predicted to rise, volatility of Rupiah will continue, and prospects for significant economic growth will remain elusive. In light of that, we expect economic authority to maintain their keen focus on macroeconomic stability and provide all the requisite support and stimulus necessary for the business sector and economy. Such actions are imperative to sustain economic stability and avert a decrease in economic growth.