China’s GDP rebound good news for Indonesia

JAKARTA. Surprisingly China powered ahead and recorded gross domestic product (GDP) growth in the third quarter (Q3) this year in an announcement that could be a positive catalyst for Indonesia’s languid exports and bolster its decelerating economy.

China announced on Friday that its economy expanded by 7.8 percent in Q3, the fastest pace this year, something Indonesia would welcome as it exports billions of dollars of goods there, mainly commodities such as palm oil and coal.

“A slowdown in China is a major worry for many emerging market economies,” Finance Minister Chatib Basri said, noting that deceleration would result in lowered demand for energy and commodities: Affecting prices and hurting commodity-exporting countries such as Indonesia.

 “The fact that China grew by 7.8 percent — well above the forecast of 7 percent — will improve our exports and have a positive spillover on our current account,” the minister explained.

China had enjoyed double digit growth — growing by 10.4 percent just three years ago — but its economy was hit by an overreliance on exports and investments.

The world’s second-largest economy only grew by 7.5 percent in the second quarter this year, the slowest pace since the 2009 global recession.

During the Asia-Pacific Economic Cooperation (APEC) Summit in Bali this month, China President Xi Jinping calmed concerns over the slowdown. The president said that he was “fully confident about the future of China’s economy, saying the country was merely undergoing a ‘profound transformation of growth model and structural adjustment’”.

Xi said that the prosperity of APEC members depended on China, adding that both his country and its neighbors in the Pacific region could not grow in isolation.

China is the number one destination for Indonesia’s exports, accounting for US$13.3 billion, or 13.5 percent, of total shipped goods from the archipelago in the January-August period this year, data from the Central Statistics Agency (BPS) shows.

The strong economic linkage between the two countries means that a 1 percent deduction of economic growth in China could slow Indonesia’s economy by up to half a percent, according to the International Monetary Fund (IMF).

Indonesia expanded by only 5.8 percent in the second quarter, its slowest pace in more than two years, this sluggish economic performance was attributed to the country’s languid exports due to the weak global demand.

Bank Indonesia (BI) Governor Agus Martowardojo warned over more severe threats of capital outflows if emerging countries such as Indonesia, China and India continued to see sharp growth slowdowns.

“The fact that emerging countries are experiencing a slowdown while developed countries are recovering, reverses the direction of global capital flows, eventually exerting pressure on currencies, notably the rupiah,” the central bank governor said.

Economists, however, were skeptical that the rebound in the Chinese economy would significantly boost Indonesia’s exports and, consequently, its economic growth.

Official data shows that Indonesia’s exports actually grew in terms of quantity, but the low commodity prices meant that export value remained low, consequently putting pressure on the earnings of local exporters.

“The negative impact of lower commodity prices cannot be offset by the growth in volume of exports to China,” Fauzi Ichsan, a Jakarta-based economist with Standard Chartered, said on Friday, adding that there were no signs of recovery for global commodity prices in the short run. (Satria Sambijantoro/The Jakarta Post)