GAMA Leading Economic Indicator (GAMA LEI) in this edition portrays  a the tendency of deterioration of economic growth.

 

Figure 20: GAMA LEI Indonesia, 2001:Q1 – 2013:Q2

 

The above figure shows circular movement of Indonesian economy , viewed from the perspective of  GDP constant  and GAMA LEI  right from  2000 to quarter  II-2013.  The movement of  GAMA LEI is able to predict with high precision the time/period when the cycle of Indonesian economy changes course, several months prior to the event. GAMA LEI  has successfully predicted with  precision and accuracy the deterioration in economic performance of Indonesian economy three times in succession–from quarter IV-2012 through quarter II-2013. This edition,  GAMA LEI which was established by the Macroeconomic Dashboard  team of the Faculty of Economics and Business (FEB UGM), focuses on forecasting the movement of Indonesian economy  during quarter  III-2013.

In general, the movement of macroeconomic indicators which constitutes the  composite that forms  GAMA LEI , shows downward trend in quarter  II-2013. The movement of the composite share price index, non oil and gas export,  and foreign exchange reserves all show contraction. The inability of the government to stem bad signals evident in  some macroeconomic indicators has led to the  aggravation of economic instability.

From the perspective of consumption, contraction of automotive sales in the economy and consumption of cement, shows weakening demand for  products produced in Indonesia.  This may serve as an indicator to the government that private consumption as the lynchpin of the Indonesian economy has run out of steam.

From the viewpoint of investment, the deterioration in the realised foreign and domestic  investment is an indication that Indonesia has drawbacks in its efforts to attract investors to invest in economic activities in the country. The second weakness, lies in the repetitive correction of economic growth rates  and government policy that lacks effective solutions to problems that hamper improvement in investment climate in the country.

Based on the above analysis, coupled with outcomes of predictions of GAMA LEI model, Indonesian economy is predicted to continue to grow slowly in quarter III-2013. This is confirmed by the absence of change in course on the movement of Indonesian economy cycle on GAMA LEI model, which would be interpreted as improvement in future from the current economic condition.

 

Consensus on Macroeconomic Indicator Projections

This estimation was obtained from a survey of the macroeconomic Dashboard team with respondents who were drawn from lecturers  and researchers in the Faculty of Economics and Business, UGM. The survey predicts three key Indonesian  macroeconomic indicators,  which include: economic growth, inflation and exchange rate. In general, predictions of macroeconomic conditions point to interesting news.
 
Real GDP growth (yoy) for quarter III-2013  and quarter IV-2013 is forecast to fall within  the range of 5.57% ± 0.28%  and 5.47% ± 0.31%, respectively. Meanwhile, prediction of Indonesian economic growth for 2013 and 2014 , taking into consideration current economic conditions,  points to  5.73% ± 0.16%   and  5.71% ± 0.29%, respectively.

 

Table 5 : Estimation of GDP  (yoy, in %)

Source: Primary Data , analyzed (2013)

 

Meanwhile, prediction of inflation (yoy) for quarter  III-2013 and quarter  IV-2013, the consensus reached was  8.46% ± 0.46% and 8.44% ± 1.04%. With respect to outcome of the prediction of annual inflation for 2013 and 2014,consensus that was  reached was  8.24% and  7.43%.

 

Table 6 : Estimatio of inflation (yoy, in %)

Source: Primary Data, analysed  (2013)

 

Lastly, estimate for the exchange rate of Rupiah against USD in quarter  III-2013 and quarter IV-2013 , is predicted to be  IDR/USD 10,928.6 ± IDR/USD 534.5 and  IDR/USD 10, 957.10 ± IDR/USD 957.2, respectively. Meanwhile, prediction of annual exchange rate for  2013 and 2014, consensus reached the outcome of  IDR/USD 10,714.3 ± IDR/USD 487.9  and  IDR/USD 10,728.6 ± IDR/USD 1,049.9.

 

Table 7: Estimation of Exchange rate of Rupiah against US Dollar (IDR per USD)

Source: Primary Data, analyzed (2013)

 

Economic Outlook
Various indicators such as inflation which shows an upward trend, the exchange rate which has depreciated significantly,  composite share price index, which has fallen sharply,  the current account deficit which has increased,  the level of  foreign exchange reserve which has plummeted,  and weakening economic growth have all caused fears about the future of Indonesian economy.  This is the more so, given the reality that the world economy is expected to experience anaemic growth, including China  and  India, which have for long posted higher growth, have also reversed course and registered  slow growth.  The weakening of the global and regional economy, coupled with rising volatility affecting regional macroeconomy facing emerging economies     such as India and  Thailand, have contributed much to increasing volatility of financial markets in Indonesia. This is compounded by concerns that the United States Federal Reserve will in the not too distant future embark of reducing monetary  expansion which has increased the outflow of capital from emerging countries, including Indonesia. The condition of the Indonesian financial markets is cause for concern because the level of foreign exchange reserves has been accumulated from hot money, which can easily reverse course, meanwhile, the debt service ratio that is above 20 %, considered  to the safe upper limit.    The same applies to private foreign debt, most of which is of short term tenor,  is growing at a high rate, and is approaching maturity, which will imply high demand for foreign exchange reserves.  At the same time, the rising current account deficit, given a decrease in foreign direct investment (FDI),  has lead to a balance of payments deficit.  Consequently, the exchange rate of Rupiah continues to depreciate, as is the composite share price index, which have unnerved many in financial markets.  This  is cause for serious concern given the fact that the depreciation of Rupiah is expected to continue for some time  because of private sector foreign debt that is approaching maturity   this year and Capital outflow  which will continue in anticipation  or because of the  implementation of the tapering out policy by US Federal reserve.  To that end, volatility which is roiling capital markets is expected to continue, as is inflation, which will undermine people’s purchasing power.   Meanwhile, investment is expected to weaken because of the rising tensions , which are likely to characterise the political  climate in the run up to the general elections in 2014. Based on the aforementioned factors, Gama Leading Economic Indicators predicts the deterioration of the Indonesian economy to continue. Today,  Indonesian economy faces a critical situation. If current macroeconomic instability continues unabated, , there is high likelihood that Indonesian economy will be plunged into another  economic crisis. Nonetheless, if economic authorities can set in motion policies that will help to stabilize macroeconomy, which will generate economic growth,  there is no doubt Indonesian economy will avert another crisis.   In light of that, it is the hope that the monetary authority implements right and appropriate policies that are necessary to current overcome macroeconomic instability.