Global Economy in 2015

World Overview
Global economy growth until September 2015 is remain moderate,
but growth are uneven accross the world. Some causative factor that drives
the economy limit are : Financial market volatility, declining commodity prices,
emerging market slow down, weaken currency towards US Dollar accross the
world. While most country experience slow growth, the US has managed to
recover from economic downturn. The global productivity are growing slower
year on year since 2010 in which the global economy recover from 2008 Global
crisis which accelerate at 5.4% increase from 2009 to 2010, but become
stagnant from 2012 to 2014 at 3.4% productivity growth range. While in 2015
the global economy slowing down to 3.1%.

Output Growth
8.7
7.5
5.4
4
2.8

5.8

5.7

3.1

2.8

5.4
3.1

3.1

6.3
4.2
1.7

-0.2

5.2

3.4

3.3

1.2

1.1

4.6
3.4
1.8

-3.4

1997 - 2006 Average

2008
Global

2010
Advanced Economy

2012

2014

Emerging Market

Exhibit 1: World Economic Output Growth

Source: IMF Economic Outlook

Advanced economy recover, emerging market growth hurt. The

advanced economy mostly are growing faster at 2014, the largest contribution
on the growth is United States as the economy are climbing out of crisis in which
the inflation rate of US is rising to 0.5% in November 2015 supported by robust
Non-Farm Payroll at 211.000 in November 2015 beats expectation which is at
200.000 according to Trading Economics data. The US decided to rise the interest
rate by 0.25% to pump up their inflation rate faster . The interest rate now
stands at 0.5% which drives the US Dollar stronger than emerging market
currency.

4
3.1
2

Average Yearly Oil Price

107.46109.45105.87
96.29

94.45

61.08

69.08

77.45
61.06

50.64

24.36

28.1

50.14

36.05

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Oil Price

Commodity price halt emerging market growth.The advanced economy

rapid growth made the USD stronger than other emerging market currency and
the falling commodity price that is mainly hurt by falling oil price since 2013
which drops from $105,87 on average to $50,14 on 2015. As the lower exchange
rate and prices down, the oil producing country will suffer greater loss on their
trade balance. This has the same impact to other commodities producing
country.
Exhibit 2 : Average Yearly World Oil Price
Source : Opec Basket Price

China import demand slower. China imports mainly are

electromechanical product which contributes around 43% of total imports, Crude
oil contributes 12% of total imports and iron ore contributes 5% of total import.
China import has been declining for 13 month straight mostly on commodities
due to weak demand. The declining China demand has main impact to China

main trading partner such as European Union, ASEAN, Japan, South Korea ,
taiwan and Australia.

Exhibit 3 : Monthly China Import

Source : Tradingeconomics.com, China General Administration of Customs

Indonesia Overview

USD/IDR Exchange Rate

15000
14000
13000
12000
11000
10000
9000

USD/IDR Exchange Rate

Rupiah performance weight down trade balance. The Rupiah is weakening

since June 2013 which suddenly hike from Rp 9,925 per USD to Rp 10,278 per
USD or a 3.55% growth and keep hiking to Rp. 13,905 per USD at the start of
December 2015. This higher exchange rate effect directly to companys
corporate bond that uses USD to pay for the bond maturity and coupon which in
the end increases companys cost of fund. Oil price and other commodities which
contributes 33.9% and 25% with total of 58.9% of total Indonesia exports are
getting double pressure as the declining price and exchange rate are weakening.

Exhibit 4 : USD to Indonesia Rupiah Exchange Rate

Source : Bank Indonesia

Indonesia annual GDP Growth Slowing since Januari 2015.

Indonesian annual GDP growth decreases from 5.01% to 4.67% as the lowest
point in second quarter 2015. Breaking down the GDP components, the
government spending and investment in Indonesia are the contributor of GDP
growth in 2015 while the balance of trade declining and private consumption
growths lowing down from early 2015. Government spending in 2015 is IDR
2,039.5 Trillion rupiah, Indonesia investment reached IDR 92.5 Trillion on Q3
which is 16.75% growth on average from Q4 2014. Indonesia balance of trade
reached deficit on November 2015 and Consumer spending rises to IDR 1,250
Trillion from IDR 1,075 Trillion early 2015.

Exhibit 5 : Indonesia GDP Annual Growth Rate

Source : Trading Economics, Indonesia Statistic

Government release stimulus package in response to slowing

economic growth. Indonesian government responding by releasing 7 stimulus
packages to push economy growth faster. The 7 stimulus are including :
Stimul
us
Packa
ge
1
2
3
4
5
6

7
8

Summary
Deregulation, Investment in property sector and rural economy focus
Push export, Tax allowance and holiday, facility incentive
Decrease in industrial electricity fee, decrease in people business
credit
Increase in minimum labor wage alligned with inflation
Tax for asset revaluation, erase double taxationfor property and
infrastructure sector, easing syariah banking permit
Tax incentive for special economic region, faster permit for
pharmacutical material import, regulating natural water resource for
private sector
Tax incentive for labor intensive industry, faster land certification
process
Reduce fuel price and improve logistic in Indonesia to reduce basic
needs price

Exhibit 6 : Government Stimulus Summary 2015

Source : Indonesia Ministry of Fiannce

Government Spending in Q3 still far from target. The spending budget only
marked a deficit in Q3 as there are only 62.43% Revenue, while total spending
has reached 69.73%. Government suffer Total Deficit of 283.7 Trillion Rupiah per
October 2015.

Government Income and Spending

Budget in Trillion Rupiah January
Octrober 2015
Budg Realizat Percent
State Income
et
ion
age
Income Tax
Value added
Tax
Property Tax
Custom Tax
Other Tax
Import Duty
Export Duty
State owned
Enterprise
Natural
Resource
Income
Non State Tax
Revenue
Public service
Income
Grant

Total Income
State
Spending
Employee
Expenditure
Equipment
Expenditure
Capital
Expenditure
Domestic
Interest
Expense
Foreign
Interest
Expense
Total Subsidy
Grant
Expenditure
Social

679,3

440,8

64,89%

576,5
26,7
145,7
11,7
37,2
12,1

308,2
13,8
98,5
4,4
25,3
3,1

53,46%
51,69%
67,60%
37,61%
68,01%
25,62%

37

35,5

95,95%

119

92

77,31%

90,1

56,9

63,15%

23,1
3,3
1761,
7

20,6
0,8

89,18%
24,24%

1099,9

62,43%

Budg
et

Realizat
ion

Percent
age

299,3

234,2

78,25%

259,7

131,5

50,64%

252,8

99,1

39,20%

141,2

122,1

86,47%

14,5

11,2

77,24%

212,1

151,4

71,38%

4,6
103,6

0,6
76

13,04%
73,36%

assistance
Other
Expenditure
Regional
Transfer
Rural Fund

31,7

3,7

11,67%

643,8
20,8
1984,
1

537,2
16,6

83,44%
79,81%

1383,6

69,73%

Total
Spending
Total
Surplus/Defici
t
222,4

-283,7
127,56%
Exhibit 7 : Government Income and Spending Budget
Source : Indonesia Ministry of Finance

Jakarta Composite Index Performance 2015

5600
5400
5200
5000
4800
4600
4400
4200
4000
42006

42037

42065

42095

42128

42156

42186

42219

42248

42278

42310

42339

Adjusted Closing Price

Indonesia stock performing badly in 2015. Jakarta composite index

were openned at 5233.796 in early January 2015, peaked at April 2015 reaching
5524.036 and reached the lowest point at September 2015 with 4,033.587.
Jakarta Composite per 1 December 2015 were closed lower by -14.62% from
2015 opening . Indonesia capital market booked a total of IDR 22 Trillion of net
sell. The global sentiment to emerging market that rely on commodity export are
waning as the commodity price are declining since mid 2014.
Exhibit 8 : Jakarta Compostie Index Monthly Data 2015
Source : Yahoo Finance

Jakarta Composite are relatively flat from October 2015 to December 2015.
Market sentiment towards Indonesia still questioned as the capital foreign
outflow mostly done between September to December 2015. All indonesian
sectors per 22 December 2015 are in red zone. Mining and Agriculture sector are
Index by
Sector
Agriculture
Basic-IND
Consumer

Changes in
2015
-33,03%
-25,26%
-8,05%

Finance
Infrastructure
Manufacture
Mining
Property
Trade

-8,38%
-15,95%
-15,00%
-41,67%
-10,33%
-7,65%

Exhibit 9 : Sectoral Indices changes in 2015

Source : Indonesia Stock Exchange (IDX)

What to Expect in 2016

Federal Reserve Potentialy Raise the Interest Rate. The Fed most
likely will increase more interest rate in 2016 as the inflation target of US still far
from target at 2% which currently stands on 0.5%. The Fed are looking for
Personal Consumer Expenditure (PCE) as the indicator of inflation. To increase
the inflation rate, central bank interest rate hike can help to pump the inflation
as the cost of fund from other businesses are going up which influenced the
business owner to raise consumer price and lead to cost push inflation in the
end. It is expected that the Fed will have another increase of 0.25% in Q1 2016,
but we expect that it will not stop there. The Fed will use Non-farm Payroll (NFP)
and PCE data for inflation indicator and effectiveness of interest rate hike. Most
likely the impact of interest rate hike will affect the currency of other country that
heavily depends on USD for their trades.
China Demand Remain Low in 2016. As China is shifting into
consumption country rather than manufacturing focus. As the consumption
raising from year to year reaching all time high in 2014 at 241,541.70 Chinese
Yuan per person while the import and export of China declines since 2013 from
207,742 Million USD to 197,242 Million USD in November 2015 for Export. China
import declines since 2013 from 182,101 Million USD and reached 143,139
Million USD by the end of November 2015. China import component according to
China general administration of customs are 48% import of electromechanical
product mostly are from European Union, Japan, South Korea and Taiwan while
the Commodity import have 17% of the portion mostly are from Australia, ASEAN
country, South Africa and Brazil will be affected from China demand.

China Export and Import 2013 - 2015

250000000
230000000
210000000 $207,742,423
190000000
$182,101,573
170000000
150000000
130000000
110000000
90000000

$197,242,316

$143,139,253

Export

Import

Exhibit 10 : Monthly China export and import from 2013

Source : China bureau of statistics

Commodity will remain pressured in 2016. Oversupply of oil in 2015

still cannot be resolved and keep the pressure under $40 per USD until end of
December 2015 and drive other production cost lower which lead to commodity
price under pressure. Stronger USD exchange rate with raising interest rate hike
outlook in 2016 can harm commodity demand as the commodity are mostly
priced using USD. Mining product got hit from China demand, mostly hit
Australia, Indonesia, and other mineral producing country.
Advanced Economy Trying to Trail Up With US Economy. The
European Union is looking to ease more on their currency by lowering more on
deposit interest rate into -0.3% to stimulate more on consumption and
investment in Euro Zone. In 2016 it is expected that European Central Bank will
not cut rate in the future as the main goal is to weaken the currency exchange
rate towards USD which the USD is getting stronger as they will rise further
interest rate in the future. In other advanced economy, Japan did not change
their interest rate as expected and focus more on financial market. Japan outlook
in 2016 will see a slow increase as demand from China as their main export
target is slowing down and consumer spending will increase which help the
output of Japan to 1%.

Exhibit 11 : Euro Zone GDP Growth Rate Quarter on Quarter

Source : Trading Economics

Indonesia in 2016
Focus on consumption and investment. As the balance of trade
component in GDP has weaken from month to month which both export and
import are falling and reached -350 Million USD for November trade, and
Government spending in 2015 marked a total deficit of IDR 284 Trillion and
primary balance of IDR -150.6 Trillion. Government is looking increase the
utilization of the budget for rural area targeted to reach 100% by end of year.

Exhibit 12 : Indonesia Balance of Trade

Source : Trading Economics

With this data, we conclude that in 2016 we see the USD strength will extend
furthermore as the interest rate of Fed rate will increase while the commodity
price will remain low in 2016 which will drive Indonesian total export and import
pressured. With higher USD exchange rate, this drive Indonesian manufacturer to
export which alligned with government stimulus package number 1 which gives
easy access for exporters.

2016 government income and spending budget improved 5.62%.

The government spending budget from 2015 to 2016 did not change much from
1,984.1 Trillion Rupiah budgeted at 2015 and in 2016 it is 2,095.7 Trillion Rupiah
Budgeted which has 5.62% changes from 2015. The concern in 2016 is more on
the income tax which only improve bye 3.45% on budget. The realization of tax
income in 2015 per October shows that the tax collection is slowing down, only
60% of the budget even the government eases the tax payment to the tax payer.
In 2016 we predict that tax payment should be better as the government still
hold the tax amnesty project, but there is no sign that government can collect
taxes above 90% if the GDP remain growth keep slowing down at 4.7%. As the
budget spending increase mostly on rural fund and regional funding, we
conclude that the economy in suburban area will grow faster than current big
urban city such as Jakarta, Medan, Yogyakarta, Surabaya and others.

Government Budget and Spending

Change
Income
2015
2016
s
1526,
1546,
Tax Income
2
7
1,34%
Non Tax
Income
232,2
273,8
17,92%
Grant
3,3
2
-39,39%
1761,
1822,
Total Income
7
5
3,45%
Spending
Ministry
Spending
811,8
784,1
-3,41%
Non Ministry
Spending
507,7
541,4
6,64%
Regional
Spending
643,8
723,2
12,33%
Rural Fund
Total
Spending

20,8

47

1984,
1

2095,
7

125,96%

5,62%
Total Deficit
or Surplus
222,4 273,2 22,84%
Exhibit 13 : Government spending and income budget comparison 2015
and 2016
Source : Indonesia Ministry of Finance

Consumption and investment focus for GDP. As the government

spending and balance of trade outlook in 2016 dont improve significantly, we
expect only consumption and investment in the GDP component can increase.
With lower inflation rate target at 4% in 2016, BI will have room to cut rate about
0.5% to push lending and financing for investment component, while in the same
time will improve indonesian consumer spending as Indonesian banking seen to

target more on consumer credit as the big 4 banks are said to focus more on
mortgage, small business enterprise, and car loans.

Performance Jakarta Composite 2016 PE Ratio Forecast. The jakarta

composite index Price to Earning Ratio will increase to 13,9x in 2016. Current
market P/E Ratio is 12,3x with standard deviation on 2,42x . We assume that the
economy will stay flat in the 1st half. Some positive consideration are lower fuel
price, lower BI Rate Outlook and higher company performance. While the positive
side is hindered by the outlook of Fed Rate hike, we assume the composite will
move only 0,68% form its standard deviation while earnings can increase inline
with the GDP growth of 5,2%. The conclusion is that PE Ratio will reach 13,9x
while earnings will increase 5,2% in which result the compostie will reach 5488
for 2016.

Forward P/E Ratio 2016

Exhibit 14 : Price to Earning Projection 2016

source : Author, IDX Statistic