The economy registered improvement largely due to growth in the services and net exports
Indonesian economy shows some slight improvements in quarter IV-2013, registering 5.72% growth year-on-year, which was lower than 6.18% in the same period last year. This was largely attributable to the incessant pressure on the current account and depreciation of Rupiah, coupled with rising inflation. The deficit on the current account over the last three quarters stoked inflation, which in turn induced an upward revision of reference interest rate, followed by depressed investment. Thus, despite the fact that the level of current account deficit showed a significant decline from USD 8.5 Billion in the previous quarter to USD 4 Billion in quarter IV-2013, the economic growth of 5.78% registered in 2013 was lower than 6.23 % recorded for 2012.
Figure 1: GDP economic growth in constant 2000 prices by economic activity, 2011 – 2013 (y-o-y, in %)
Economic growth was by and large, propped up by Communications and Transportation Sector, as well as in primary sectors albeit at a decreasing rate
Notes:
Primary sector: Agricultural Sector, Livestock, Forestry and Fisheries; and Mining and Extraction Sector
Industrial Sector: Processing Industry sector; Electricity Sector, Gas and Clean Water; and Construction Sector
Services Sector: Trade Sector, Hotel and Restaurants; Transportation and Communications Sector; Financial, Real Estate and Company Services Sector; and Services Sector
Source: BPS and CEIC (2014)
The services sector continues to underpin economic growth in quarter IV-2013. Nonetheless, this sector also experienced slower economic growth, while primary and industrial sectors, showed a gradual upward trend. The services sector posted lower growth of just 6.48% than 7.66% in quarter IV-2012. In the meantime, economic growth in the primary sector was 3.86% (y-o-y), which was attributable to 3.91% growth in mining and extraction sector (y-o-y). Despite the fact that the primary sector registered a growth, the rate of the growth shows a downward trend. Meanwhile, the industrial sector registered growth of 5.60% (y-o-y), which was in line with rate of growth in exports, especially non-oil and gas category. Overall, transportation and communications sector registered the highest growth (10.32%, y-o-y), followed by financial, real estate and company services (6.79%, y-o-y) and construction sector (6.68%, y-o-y).
Figure 2: GDP growth rate, Indonesia in constant 2000 prices by Economic activity, 2011 – 2013 (y-o-y, in %)
The increase in Indonesian economic growth in the fourth quarter in 2013 is attributable to the increase in net exports
Source: BPS and CEIC (2014)
With respect to expenditure, economic growth in quarter IV-2013 was largely attributable to the increase in net exports, which therefore served as an offset to the downward performance of domestic expenditure. The increase in net exports in quarter IV-2013 was partly because of 7.40% (y-o-y) in value of exports and a decline in the value of imports -0.60% (y-o-y). This was largely due to an increase in non-oil and gas exports to main trading partners such as China, United States and Japan. Meanwhile, household consumption, government consumption and investment, registered lower growth rates, 5.25% (y-o-y), 6.45% (y-o-y) and 4.37 (y-o-y), respectively. To that end, household consumption, government consumption, and investment, in quarter IV-2013, was lower than 5.48% (y-o-y), 8.91% (y-o-y) and 4.54% (y-o-y), respectively, registered in quarter III-2013. Slower investment growth, was in part as a consequence of Bank Indonesia policy that raised reference interest rate from 7.25% in October 2013 to 7.50% in November 2013, which was coupled with political certainty in the run-up to the general elections.
Poverty Incidence and Employment Worsened
Despite the fact that the economy showed slight improvement in quarter IV 2013, unemployment increased in August 2013. Open unemployment rose to 6.3% in August 2013 from 6.1% during the same period in the previous year. Besides, based on BPS publication, the number of people in Indonesian work force increased by 150,000 from 118.05 million to 118.19 million. Viewed from the vantage point of gender, the participation of men and women in the work force declined from 84.42% and 51.39%, respectively, in August 2012, to 83.58% and 50.28%, respectively, in August 2013. In general, the participation of women in the work continues to trail that of men.
Figure 14: Workforce Participation rate by Gender and Open unemployment in Indonesia, February 2011 – August 2013 (in %)
Open unemployment increased
Source: BPS and CEIC (2014)
In the meantime, based on the structure of employment, in accordance with the position in August 2013, the contribution the population working in the agricultural sector continues to decline. In August 2012, agricultural sector contributed 35.09% of the work force, but by August 2013, it has declined to 34.36%. The decline in the workforce in the agricultural sector is in part attributable to the high wage differential between wages offered in agricultural sector and other sectors such as industry and trade. Nonetheless, the agricultural continues to be the largest source of employment in Indonesia, followed by trade, social services, and industry in that order. Nonetheless, workforce in the construction and Industry sectors also declined to 5.67% and 13.43% in 2013, from 6.13% and 13.87% in 2012, respectively.
Table 1: Population 15 years old and above by Main source of employment, 2011-2013 (in %)
Contribution of population to workforce in the agricultural sector continues to decrease, while that in the industry shows an increase
Source: BPS and CEIC (2014)
Inevitably, the increase in open unemployment, has led to higher poverty incidence. People who were categorized as poor increased from 28.07 million (11.37% of total population) in March 2013 to 28.55 million (11.47% of the total population) in September 2013. The drastic increase in poverty is in part attributable to the rise in inflation as a direct consequence of government policy to raise fuel prices in June 2013. Meanwhile, open unemployment in August 2013, was 6.3%, which represented an increase from the position in February of 5.9%. The increase in poverty in 2013 was aggravated by rising income inequality reflected in the Gini Ratio, which increased from 0.410 in 2012 to 0.413 in 2013. This attests to ineffectiveness of income distribution programs. Rising income inequality continues to grow amidst rising economic growth. To that end, there is need for the government to increase its focus on equitable development rather than pursuing economic growth for its sake.
Table 2: Developments in Poverty and Inequality in Indonesia, 2011-2013
Poverty incidence and Income Inequality in Indonesia have increased
Source: BPS and CEIC (2014)