Indonesian Economy Slowing Down Due To Trade War

Analysis of the latest trade data by observers in Indonesia suggests that economic activity in the country is slowing down.

According to The Jakarta Post, the culprit behind it is the fallout of the ugly US-China trade war. Exports during the January to June period, as they were measured, went down 8.57% year-on-year while imports also slid down 7.63%.

Across the board, imports have gone down. Raw materials, capital goods, even consumer goods weren't going out and into the country as expected. David Sumual, the chief economist at the Bank Central Asia (BCA), said that despite Indonesia having recorded two months of trade surplus after the other, imports of raw and auxiliary materials, as well as exports of these, were on the decline.

May's imports have dropped from $2.18 billion for oil and gas down to $1.71 billion, while June's imports have gone down from $12.42 billion to $987 billion. These have gone down drastically and the impact on economic growth hasn't been shown yet. Sumual still had some good words, saying that the June figure "showed a surplus" but it's only good for the current amount and vigilance on the impact it will have on the economy must be kept.

In an effort to protect any progress the economy's made so far, Indonesia's central bank cut down on its benchmark interest rate, marking this the first time it had done so in two years. It is done with the hopes that it will affect the sluggish growth experienced by the economy, moving earlier as expected than the US Federal Reserve will.

Reuters reported that Bank Indonesia (BI) trimmed its 7-day reverse repo rate by 25 basis points. This is 5.75% better and as expected by a poll of 23 out of 33 economists. Governor Perry Warjiyo of the BI said that the bank sees a future with room for "accommodative monetary policy" which is in line with their hopeful expectations of lower inflation in support of robust economic growth.

The governor said that he hoped this would help lessen the impact which the US-China trade dispute had brought. Indonesian economic growth in Southeast Asia's biggest economy had stalled at 5% for quite some time. BI still sees some more growth before the year ends, with expectations of 5.0% to 5.4%.

Indonesia's policymakers have been trying to enact laws that will encourage investments, but economists argue that the problem is more structural than legal.

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