World Bank forecasts Indonesia’s economy growing below 5%

World Bank is projecting the Indonesian economy will miss its growth projections. (Reuters pic)

JAKARTA: The World Bank projects Indonesia’s economic growth will slide to below 5% next year and warned of the potential for “severe” capital outflows as global risks including the US-China trade war intensify.

The forecasts were presented to Indonesian President Joko Widodo, according to two people with knowledge of the matter, who didn’t want to be identified because the discussions were private.

The presentation slides – which were dated September and were seen by Bloomberg – show a growth forecast of 4.9% for next year, which would be the slowest pace since 2015.

That’s lower than current projections of 5.1% for this year and 5.2% for 2020 in the World Bank’s June quarterly report on Indonesia.

The government expects growth of 5.1% in 2019 and 5.3% in 2020.

The US-China trade war and geopolitical risks are intensifying, with “flash points everywhere” – from Brexit to protests in Hong Kong to next year’s US elections – the World Bank said in its presentation.

These risks have the potential to cause “a negative economic shock” with “severe portfolio capital outflows” that could be larger than anything seen in the past decade, it said.

The World Bank’s country director for Indonesia, Rodrigo Chaves, declined to comment on the presentation.

All relative

Indonesia’s Coordinating Minister for Maritime Affairs Luhut Pandjaitan said the World Bank had confirmed to him at a meeting Monday that it downgraded its forecast for Indonesian growth.

“It’s still better than any other emerging economy,” Pandjaitan told reporters after meeting Chaves.

The Sept 5 presentation to Widodo and senior cabinet ministers contained a sobering growth outlook into the future.

A global slowdown will drag Indonesia’s growth to 4.6% by 2022, the World Bank estimated.

A 1 percentage-point decline in China’s growth rate would translate into a 0.3% drop for Indonesia, it said.

Indonesia’s reliance on foreign investment in stocks and bonds makes it vulnerable to outflows when global risks rise.

The government should focus its efforts on spurring foreign direct investment rather than reducing the current-account deficit, the World Bank said.

Figures contained in the World Bank presentation show Indonesia has been struggling to attract foreign direct investment or lure companies looking to relocate from China amid the trade war.

Between June and August this year, 33 Chinese-listed companies announced plans to set up or expand production abroad, with 23 moving to Vietnam and others to Cambodia, India, Malaysia, Mexico, Serbia and Thailand.