International Finance
Economy

Indonesian factory situation gallops ahead in April

Flicks off first quarter growth blues, while apex bank promises improved growth this fiscal, reports Team IFM Jakarta, May 15: Indonesia, which has consistently been among the top performers in the global growth rankings in recent years, seems to have brushed off first quarter blues to start the April-June period on a strong note, an independent survey report released last week said, while the country’s...

Flicks off first quarter growth blues, while apex bank promises improved growth this fiscal, reports Team IFM

Jakarta, May 15: Indonesia, which has consistently been among the top performers in the global growth rankings in recent years, seems to have brushed off first quarter blues to start the April-June period on a strong note, an independent survey report released last week said, while the country’s apex bank predicted “further improvement” over its 2013 growth story.

According to it, business conditions at its factories grew at the briskest clip in the past 11 months in April, even as official statistics showed that annualised first quarter growth in 2014 was the slowest in four years.

“April data indicated that business conditions in Indonesia’s manufacturing economy improved at the fastest rate since May last year,” said the report by economy tracker Markit, prepared on behalf of HSBC.

“Companies continued to report lower output, but new orders expanded at a stronger pace in the latest month,” the report said.

Alongside, official data showed South-East Asia’s largest economy faltered in the beginning of the year, its year-on-year first quarter growth falling to 5.21 percent over the January-March 2013 figure, data from the National Statistics Bureau said.

This was also the tardiest pace since the third-quarter of 2009, and fell from 5.7 percent annualised growth notched in the fourth quarter of last year. It was also below the 5.6 percent growth projected by analysts.

The first quarter growth of 0.95 percent over that the fourth quarter of 2013 was also below expectations of a 1.26-percent upswing.

Bank Indonesia, the country’s central bank, struck an optimistic note saying for the future, the “upbeat direction” of the economy in the fourth quarter of 2013 can serve as a positive basis for further improvement in the economy in 2014, which it predicted would grow “within the 5.5-5.9 percent range”.

“Bank Indonesia predicts economic stability to remain comfortably secure accompanied by improved equilibrium in economic growth that will enable the current account deficit to be brought down to a safer level,” the apex bank said in its Economic Report 2013.

Q2 PUSH

As if on cue, operating conditions in Indonesia’s factories improved at the strongest rate in 11 months during April, said the Markit report.

At 51.1, up from 50.1 in March, the seasonally adjusted HSBC Purchasing Managers’ Index (PMI) – reflecting the country’s economic health – was at an 11-month high in April. “Bolstering the PMI was a faster increase in incoming new orders and a return to growth in both staffing numbers and stocks of purchases,” Markit said.

“While production fell again in the latest month, the other component of the headline index, supplier delivery times, also contributed positively to April’s reading,” it added.

Indonesian goods producers indicated that recent floods, combined with the elections and shortages of some raw materials, led to falling output in April. Nonetheless, the rate of reduction was unchanged from the fractional pace seen one month previously.

New orders increased for the seventh consecutive month in April and at the strongest rate since January.

Growth of new business was linked by panellists to improving underlying demand at home and abroad, as well as better economic conditions, the report said.

New export orders rose further in April, stretching the current period of growth to four months. The rate of expansion was slight overall, but the strongest in that sequence. Companies reported higher demand from Asian and European clients.

Manufacturing employment in Indonesia increased for the first time in nine months during April, amid evidence of new order growth. “That said, the rate of job creation was only fractional as the vast majority of respondents (almost 89 percent) indicated no change in staffing levels since March,” it added.

Quantities of purchases also rose at the strongest pace in five months during April. Moreover, the rate of expansion was above the series average.

Concurrently, pre-production stocks were accumulated for the first time in three months. Conversely, holdings of finished goods fell, which survey respondents linked to falling production.

“The PMI was surprisingly strong in April, and the breakdown suggests the pick-up was driven more by an improvement in domestic demand,” said Su Sian Lim, ASEAN Economist at HSBC. “New export orders expanded only slightly during the month, while overall new orders rose more strongly.”

According to her, other sub-components of the PMI also improved more than expected; employment increased for the first time since July 2013, albeit marginally, while stocks of purchases returned to growth.

“Nevertheless it remains to be seen if this momentum can be sustained,” Su Siam said. “The rate hikes delivered by Bank Indonesia in second quarter of 2013 to cool the domestic economy is still washing through, with banks’ lending rates yet to fully reflect the tightening in policy rates that has occurred.”

CENTRAL ROLE

Su Siam was referring to the Indonesian authorities taking bold measures to counter capital outflows and contain its current-account deficit, and thereby inspire confidence in its fragile currency, the rupiah.

The country has consistently logged growth figures above 6 percent, slipping below it only in 2013. But a slew of inspiring economic figures this year have goaded investors to become more optimistic about the economy, though concerns about political risks remain as the country heads into presidential elections in July.

Inflationary pressures are easing, however, and a controversial ban on export of certain minerals seems to have had a limited effect so far, though the National Statistics Bureau feels it is behind the poor first quarter show.

“Mining fell due to the export ban on some minerals and raw materials,” Statistics Bureau head Suryamin told news agency Reuters. According to him, the construction sector had grown 6.54 percent from the same period a year earlier.

Moreover, National Statistics Bureau data showed, the mining sector contracted 0.38 percent on an annualised basis in the first quarter, as compared to a 3.91 percent expansion in the October-December 2013 period.

In its 2013 Economic Report, Bank Indonesia said while growth was slower than in 2012, the economy recorded 5.8 percent growth in 2013, “ahead of peer countries”.

In other developments, a turnaround in exports and falling imports brought about a significant reduction in the current account deficit to 2 percent of GDP in the third quarter of 2013, well below that of preceding quarters.

The capital and financial account also improved in response to drawing down of corporate offshore borrowings, withdrawal of funds from overseas deposits held by domestic banks and stable inflows of foreign direct investment.

“In 2013 overall, the current account recorded an increased deficit over the previous year at 3.3 percent of GDP, albeit short of earlier forecasts,” Bank Indonesia said. “International reserves were maintained at a comfortably safe level of $99.4 billion, equivalent to 5.5 months of imports and servicing of official external debt.”

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