Economic Growth Slows Further
Growth slipped below 6 percent last quarter as exports and investment fell in Southeast Asia’s largest economy. (AFP Photo/Bay Ismoyo)
Indonesia’s economy in the second quarter expanded at the slowest pace in almost three years, compounding concerns on the Southeast Asian nation as investments ease, inflation accelerates and the currency slumps.
Gross domestic product rose 5.81 percent in the April-June period from a year earlier, the Central Statistics Agency (BPS) reported on Friday.
Last quarter’s economic expansion was lower than the median estimate of 5.9 percent in a Bloomberg News survey of 19 economists and also the fourth straight quarter in which growth eased.
GDP hasn’t been that slow since the 5.8 percent expansion rate in the third quarter of 2010.
Growth in the first quarter was revised to 6.03 percent, from 6.02 percent earlier.
The Indonesian economy is moderating, “clearly signaling the drag created by the weakening of the rupiah, which we think has affected investment growth in the economy,” Gundy Cahyadi, an OCBC economist, said on Friday.
Domestic and foreign investment rose 4.7 percent in the second quarter from a year earlier, compared with 5.9 percent in the January-March period. Investment accounted for 33 percent of the country’s economic activity and was the second-largest contributor after private consumption, which made up 55 percent.
Private consumption growth slowed slightly to 5.06 percent, which was lower than the first quarter’s 5.17 percent.
Helmi Arman, an economist at Citibank Indonesia, said that the consumption pace has begun to moderate due to rising inflation expectations due to June’s subsidized fuel price increase.
“Meanwhile, the slowing in non-food consumption may have been led by resource-rich provinces outside Java following the decline in commodity prices,” Helmi said.
Exports unexpectedly rose 4.78 percent year-on-year from a 3.57 percent gain in the first quarter despite demand from major markets slowing and a price decline in commodities, suggesting that the currency will weaken.
“Despite the weakening of the rupiah that has been witnessed since the second half of 2012, Indonesia’s export growth has continued to be sluggish, and while this has been partly driven by the softening in commodity prices, it is also clear evidence that productivity, competitiveness and lack of value-added are problems faced by the economy. This is something that the government needs to tackle going into 2014,” OCBC’s Gundy said.
Government consumption rose 2.1 percent in the second quarter.
On the production side, growth occurred in all sectors except for mining and quarrying, which shrank by 1.2 percent from a year earlier.
The transport and communication sector posted the highest growth, at 11.5 percent, followed by financial and real estate at 8.07 percent, and construction at 6.88 percent. The electricity, gas and water sector rose 6.6 percent, the hospitality industry increase 6.5 percent, while manufacturing maintained its 5.9 percent pace. Growth in agriculture slowed to 3.2 percent, from 3.6 percent in the first quarter.
Even so, bankers like Parwati Surjaudaja, president director of Bank OCBC NISP, said that loan demand for commercial lenders will remain strong this year, growing at 27 percent, which is above the industry 23 percent growth.
“We don’t change the target,” she said in a telephone interview with the Jakarta Globe.
Indonesia’s hope for an immediate economic rebound seems unlikely at a time when inflation is running at the fastest pace in more that four years, the trade and current account deficits are widening and the rupiah is weakening against the dollar — which has depreciated 6.4 percent so far this year.
“We expect that growth in the next quarter will slow down further, as surging inflation will affect the purchasing power, hence private consumption may slow significantly,” said Anton Gunawan, a Bank Danamon Indonesia economist.
Consumer prices rose 8.61 percent in July from a year earlier after a 5.9 percent gain in June. Inflation accelerated as the full impact of the 33 percent average fuel price increase met the new school year. Due to rising demand during Ramadan and unseasonal weather disrupting the food supply July inflation was the highest since February 2009.
Bank Indonesia, the central bank, has raised interest rates in the past two meetings by 75 basis points to 6.50 percent in an effort to temper prices and reduce capital outflows, but tightening monetary policy may hurt domestic spending and compound the slowdown in Southeast Asia’s largest economy.
“BI may pay attention to the weak economy and raise the BI rate further as their last option,” Anton said.
Economic Growth Slows Further - The Jakarta Globe
Expect More M&A in Indonesian Insurance: Fitch
By Dion Bisara on 9:28 am June 7, 2013.
Category Analysis, Business
Tags: acquisition, Fitch Ratings, indonesia insurance business, insurance industry, Mergers
Underdeveloped markets, more permissive foreign shareholding rules, and higher capital requirements are likely to drive mergers and acquisitions between foreign and domestic insurers over coming years, Fitch Ratings said.
The debt rating agency made the comments after Japan’s Dai-ichi Life Insurance announced a plan to spend Rp 3.3 trillion ($337 million) to acquire a 40 percent stake in Panin Life, a life insurer controlled by millionaire Mumin Ali Gunawan family’s Panin Financial.
“[That] highlights the attractiveness of the Indonesian market,” Fitch said in a statement that was received by the Jakarta Globe on Wednesday.
Fitch noted that rising income levels among Indonesia’s 240 million population and relatively low penetration in the insurance market — only 1.7 percent of 2011 GDP came from insurance premiums — signaled enormous growth potential for insurance in Indonesia.
Fitch also pointed to a vast untapped market for takaful, or Islamic insurance, in the country, whose population is about 85 percent Muslim.
Foreign shareholding in insurance companies is presently allowed to reach 80 percent, a level that is more generous than in other Asian countries, such as India and Thailand, where the respective caps are 26 percent and 49 percent, Fitch said.
It is also much higher than in the banking sector, where for commercial lenders Indonesia’s cap on foreign shareholding is a mere 40 percent.
Meanwhile, minimum capital requirements are going up, with Rp 70 billion mandated as of 2012 and Rp 100 billion required by the end of 2014.
Levels like that, according to Fitch, might force some players to merge or simply exit. “We expect consolidation … and fewer participants due to domestic and cross-border mergers and acquisitions,” Fitch said.
Foreign insurers from more developed markets — like Dai-ichi Life — have expertise that can help step-up competition among local players. The agency noted that compared to more mature markets, Indonesia still had room for improving corporate governance and transparency.
Indonesia is home to 46 life insurance companies including Asuransi Jiwa Bersama Bumiputera 1912, the oldest life insurance company, and foreign-local joint venture AXA Mandiri Financial Service.
Data from the Financial Services Agency (OJK) showed the nation’s life insurance premiums rose 7.3 percent to Rp 103.5 trillion last year. Life insurers’ total assets last year were Rp 259 trillion, up 13 percent from Rp 229 trillion in 2011.
http://www.thejakartaglobe.com/business/expect-more-ma-in-indonesian-insurance-fitch/
Ultrajaya Milk Teams Up With Japanese Soft Drinks Partner
By Francezka Nangoy on 9:45 pm August 2, 2013.
Category Business, Corporate News
Tags: milk, Ultrajaya Milk Industry & Trading Company
Ultrajaya Milk Industry & Trading Company, Indonesia’s largest producer of ready-to-drink milk, has moved to set up two joint venture companies with Japan’s Ito En to produce and distribute soft drinks in Indonesia.
In a filing at the Indonesia Stock Exchange on Friday, the company announced that on Wednesday, the two companies formed Ultrajaya Ito En Manufacturing and Ito En Ultrajaya Wholesale as vehicles for their cooperation, first announced a month ago.
Ultrajaya Ito En Manufacturing, which will be responsible for production, is 55 percent owned by Ultrajaya, while Ito En Ultrajaya Wholesale, which will oversee distribution, is 55 percent controlled by the Japanese counterpart, the statement said.
Ultrajaya and Ito En provided Rp 30 billion ($2.9 million) in capital for the establishment of each joint venture.
Ito En is a multinational beverage company that is the largest green tea distributor in Japan. The company is also the fourth-largest soft-drink producer in Japan, after Coca Cola, Suntory Beverage and Kirin Beverage.
Meanwhile, Ultrajaya is one of the largest nonalcoholic beverage companies in Indonesia, holding a 50 percent market share of boxed ready-to-drink milk with its Ultra Milk brand, and a 60 percent market share of boxed ready-to-drink tea with its Teh Kotak brand.
“Nowadays, we see the ready-to-drink beverage industry is growing rapidly and the competition dynamic is getting tight,” Herman Koeswanto, an analyst with Mandiri Sekuritas, said in his report on Ultrajaya last month.
“Big local players are entering the ‘party’ to grab the pie by partnership with Japanese multinational companies, including Suntory with Garuda Food and Indofood CBP with Asahi Group.”
Herman said distribution networks are important in the Indonesian beverage business.
Given established networks and strong management in both companies, the collaboration will underpin Ultrajaya’s future earnings growth, he said.
http://www.thejakartaglobe.com/business/ultrajaya-milk-teams-up-with-japanese-soft-drinks-partner/
