The declining in net exports has caused the economic slowdown and significant increase generally in the government expenditure and energy subsidies in particular
Indonesian economy posted steep slowdown in quarter I-2014. Indonesian economy posted growth of 5.21% (y-o-y), in quarter I-2014, which represented a decline compared with 5.72% (y-o-y) posted in quarter IV-2013. Moreover, economic growth posted in quarter I-2014, was far lower than 6.03% (y-o-y), which was registered in the same period in the previous year.
Slower economic growth posted in quarter I-2014 is largely as a result of a significant decline in net exports. The significant contraction in net exports, adversely affected economic growth in quarter I-2014. The -0.78% (y-o-y) contraction of exports posted in quarter I-2014, was large enough to push net exports into negative territory, albeit -0.66% (y-o-y) contraction in imports. The decline in net exports is by and larger attributable to a decrease in exports of minerals such as coal and coal concentrates, which is a reflection of the performance of the mining sector that posted contraction of -0.38% (y-o-y). The poor performance of the mining sector is largely as a direct consequence of the coming into force of Mining Law No.4/2009 on exports of unprocessed minerals with effect from 12 January 2014. Nonetheless, sluggish growth of Indonesian economy is also due to persisting uncertainty in the global economy, as reflected by decline of economic growth of the economy of China from 7.7% (y-o-y) in quarter IV-2013 to 7.4% (y-o-y) in quarter I-2014, which by implication adversely affected the performance of Indonesian economy.
Figure 1: Indonesian GDP growth at 2000 Constant Market Prices by Industrial Origin, 2011 – 2013 (y-o-y, in %)
Economic growth slowed in quarter I-2014 largely as a result of contraction in the mining sector
Notes:
Primary Sectors: Agricultural, Livestock, Forestry and Fisheries; Mining and Quarrying; Industrial
Sectors: Manufacturing; Electricity, Gas and Water Supply; and Construction
Services Sector: Trade, Hotel, and Restaurants; Transport and Communication;Finance, Real Estate, and Business Servicess; and Services
Source: BPS and CEIC (2014)
Slowing government consumption also contributed to the weakening of economic growth. Government consumption grew by 3.58% (y-o-y) in quarter I-2014, which was far lower than 6.45% (y-o-y) registered in quarter IV-2013. Meanwhile, household consumption remained unchanged in quarter I-2014 as it posted growth of 5.41% (y-o-y) which is not much different from 5.44% (y-o-y) recorded in quarter IV-2013. Nonetheless, slow growth of net exports, government consumption and household consumption in quarter I-2014, was not shared by investment which posted 5.13 % (y-o-y) in the same period, higher than 4.375 (y-o-y) recorded in quarter IV-2013.
Figure 2: Indonesia GDP Growth at 2000 Constant Market Prices by Expenditure, 2011 – 2013 (y-o-y, in %)
Net exports performance and government consumption deteriorated
Source: BPS and CEIC (2014)
Returning back to structure of GDP, primary sector experienced pretty significant economic contraction. During quarter I-2014, the primary sector (which comprises Agricultural, Livestock, Forestry, and Fisheries Sector as well as Mining and Quarrying Sector) registered growth of 1.97% (y-o-y), which is lower than 3.86% (y-o-y) registered during quarter IV-2013. The condition was largely attributable to 0.38% (y-o-y) contraction in the Mining Sector. Meanwhile, the Manufacturing Sector and Services Sector, which grew by 5.46% (y-o-y) and 6.39% (y-o-y) respectively, posted lower growth than that registered in quarter IV-2013. On the same note, based on data obtained from BPS, sectors that posted high growth year on year in quarter I-2014 in ascending order were Transport and Communication Sector (10.23%), Construction Sector (6.54%), also Electricity, Gas, and Water Supply Sector (6.52%).
Achievements in the labor market rate not yet cause for celebration
Indonesia registered an open unemployment rate of 5.7% in February 2014, which is the lowest in three years. According to BPS, the number of people classified as unemployed in February 2014 was 7.15 million, which was a decrease compared with 7.41 million registered in September 2013. The achievement made in the labor market came on the heels of an increase in employment in the informal sector and those working part time. The number of employees in the informal sector increased by 420,000 between February 2013 and February 2014, which represents an annualized increase of 0.60% (y-o-y). Besides that, BPS data also showed that the number of part time workers rose sharply from 22.93 million in February 2013 to 26.40 million in February 2014. Despite marked improvement in the realm of unemployment, BPS noted that most added employment in February 2014 (46.80 %) was suitable for people with primary education attainment and below leaving only 7.49% of new employment for employees with university education. Meanwhile, the participation rate of the work force in February 2014 was 69.17%, which was higher than 66.77% registered in August 2013.
Figure 3: Labor Force Participation and Open Unemployment in Indonesia, February 2011 – February 2014 (in %)
Unemployment rate situation registered some improvement
Source: BPS and CEIC (2014)
With regards to the structure of employment in February 2014, the contribution of agricultural sector registered a slight increase. That said, the number of people employed in the agricultural sector in February 2014 represented a decline for the level that obtained in the previous year. The number of people employed in the agricultural sector decreased from 41.11 million in February 2013 to 40.83 million in February 2014. However, employment in the trade and social services sector increased. The above developments attest to the shift in the structure of employment in Indonesia from the agricultural sector to other sectors, especially trade, services and industry. Nonetheless, Agriculture, Forestry, Hunting and Fishery sector continues to be the most important provider of employment in Indonesia, contributing as much as 34.55% to total employment in the economy. Second in line, based on contribution to employment in the economy in February 2014, was Trade (21.84%), Community, Social, and Personal Services (15.64%) and Manufacturing Industry (13.02%).
Table 1: Population of 15 Years of Age and Above Who Worked by Main Industry , 2012-2014 (%)
Despite showing a downward trend, Agriculture, Forestry, Hunting, and Fishery sector continues to be the main source of employment in Indonesia
Source: BPS and CEIC (2014)