Economic Analysis of Indonesia GDP

Question: Discuss about the Economic Analysis of Indonesia GDP. Answer: Introduction The fall in the GDP growth rate has been found to be a major concern for the Indonesia economy in the current scenario. According to the article of The Straits Times (2017), the Gross Domestic Product Growth Rate of Indonesia has fallen from 5.01 in the last quarter of 2016 to 4.94 percent (The Straits Times, 2017). As per the forecast of the Reuters poll, the GDP growth rate must have remained around 5.07 percent. But, the political changes around the globe and financial downturn have forced the Indonesian economy to evident an economic downfall in the recent year. On the other hand, a fall in the government spending and investment has been seen in the nation resulting in an increase in the unemployment rate. Furthermore, a cut in the interest rates has been implemented by the Indonesian Central Bank to handle the situation of economic downturn. Finally, the article says that most of the economists believe that the GDP growth rate of Indonesia will remain around 5 percent in the upc oming two years (The Straits Times, 2017). Key economic concepts used The identified newspaper report article demonstrates the GDP growth status of Indonesian economy in the fourth quarter of 2016-17. According to the reports, the Gross Domestic Product of South-east Asias biggest economy has recorded a growth of mere 4.94 percent during October to December 2016 quarter (Dobson, 2013). Leading to uncertainty of US policy of new US President, the growth of the economy has hampered. Meanwhile, due to spending cuts of government and lower household consumption, the growth status of the economy has weakened, to say the least (Hadiwibowo, 2016). Meanwhile, in the previous quarter, the GDP growth rate was 5.01 percent as per the records of the Statistics Bureau of Indonesia. Broadly speaking, there are four major economic indicators can be taken into consideration i.e. inflation, unemployment status, fiscal policy, and monetary policy to define the entire growth scenario (Hadiwibowo, 2016). According to the data released by Statistics Indonesia, the consumer prices of Indonesian economy increased 3.49 percent during January 2017. In the preceding month, the rate of inflation was recorded 3.02 percent. Therefore, the increase in the consumer prices has added pressure on overall growth scenario of the economy (Lewis, 2013). Under the current state of inflation rate, policy makers of Bank Indonesia, the Central Bank of Indonesia has set specific inflation targets to support growth in the long-run. On the other hand, the issue of unemployment has been another economic indicator to explain the current scenario of growth. In the third quarter of 2016, the rate of unemployment rose to 5.61 in compared to 5.50 percent o unemployment in June quarter (Rahadiana Purnomo, 2016). Decisively, the surging rate of unemployment in the last quarter has added significant pressure on the policy makers of the Central Bank of the economy to make significant changes in the monetary policy. T he monetary stance of the Bank Indonesia, in this case, is termed as vital (Layard, Nickell, Eichhorst, Zimmermann, 2016). Leading to the growth of the economy, the fiscal policy of the policymakers has promoted moderate development in the private as well as public sector to improve economic productivity. The fiscal policy has delivered 223.4 trillion rupiah as government spending to boost the growth of the economy (The Straits Times, 2017). Fundamentally, the growth target set by the Indonesian Central Bank was 5.3 percent. But recent economic uncertainties and changes in US policies has changed the target to 5 percent, to be precise. As far as the monetary policy of BI is concerned, the Central Bank of Indonesia has prompted interest rate cuts for as much as six times in 2016 supporting growth structure of the economy. Meanwhile, the Central Bank of Indonesia has stated to take cautious initiatives to ease the pressure hampering growth. Overall perspective, the decrease in exports due to fall in prices of global commodities such as crude and coal has added extra pressure on economic development. Application of economic theories to the key issue By considering the facts provided in the article, it can be seen that the GDP growth rate of Indonesia has fallen below the expected level. According to the statistics of the previous year, it can be seen that the Indonesian policymakers are quite effective in raising the GDP growth rate up to 5.18 percent during the second quarter of 2016 by using the interest rate cut-off policy (The Straits Times, 2017). On the other hand, the stability of commodity prices has worked effectively to increase exports for the nation. But, the contraction of the government spending and investment has led to the fall of production that further leads to the fall of GDP growth rate in the nation. A graph has been presented herein below for further consideration. Figure: Indonesia GDP Annual Growth Rate Source: (Indonesia GDP Annual Growth Rate, 2017)In order to understand the impact of falling GDP growth rate on the economy, the unemployment and inflation rate of Indonesia has been considered in the paper. It can be seen through the graph presented herein below that the Central Bank of Indonesia has been quite effective in controlling the unemployment rate during the first half of the previous year (Hudson, 2016). But, the fall in the GDP growth rate has impacted the labour demand in the domestic market resulting in the rise of unemployment rate from 5.5 percent to 5.61 percent (Indonesia Unemployment Rate, 2017). According to the market analysis, it is forecasted that the unemployment rate will increase in the future due to the industrial shutdowns. Figure: Indonesia Unemployment Rate Source: (Indonesia Unemployment Rate, 2017) The article of the Straits Times (2017) shows that the Indonesian Central Bank has tried to reduce the interest rate to promote growth of economy (The Straits Times, 2017). On the other hand, the decrease in the government spending has resulted in the fall of the subsidiaries provided on consumer goods leading to rise of price level in the market. Statistics shows that the Indonesian policymakers have spent 223.4 trillion Rupiah less than the actual planned expenditures. Hence, it has resulted in a rise in the inflation rate in the nation from 3.02 percent in December 2016 to 3.49 in January 2017. Figure: Indonesia Inflation Rate Source: (Indonesia Inflation Rate, 2017) It is expected that the BI will further reduce the interest rates to promote trade in the domestic market. Additionally, the Reuters Poll forecast the GDP growth to be around 5.2 percent in the upcoming year (The Straits Times, 2017). Hence, it can be seen that the downfall in the economic growth in the nation has occurred for a shorter period that can be controlled by using adequate monetary policy. Implications and economic insights The brake on the economic growth has been a leading economic issue for any developing nation. As a result of the scenario, identification of solution to the issue will be mandatory. Subsequently, growth registered in the last quarter of 2016 has been purely due to increased amount of exports of commodities. On the other hand, the consequences of reducing growth can be discovered in a significant order (Dobson, 2013). Due to GDP growth rate below 5 percent, the government spending as well as the consumption of the public has been slummed. The Bank Indonesia and policymakers of the country unanimously set the economic growth targets on the basis of recent policy developments. Meanwhile, in the last year, the Central Bank of Indonesia has cut the benchmark rate to 4.75 to create substantial money flow. According to the reports, 150 basis points have been cut in the benchmark rates during 2016 by BI (The Straits Times, 2017). In the current state of economic scenario, the forecast of growth rate has been 5.1 percent in Indonesia. Although domestic as well as global growth uncertainties and increasing rate of consumer prices and unemployment have hindered the GDP growth rate of the economy, BI has stepped up to the occasion to deliver most comprehensive monetary policy. As a matter of fact, the policymakers must reduce unproductive expenditure to the public and private sector as much as possible. Also, exports policy and foreign exchange policy must be revised to support the growth structure of the economy (Permani, 2011). Decisively, the policymakers of Indonesia must influence the foreign investors to make substantial investment to the economy leading to sustainable growth. Conclusion By considering the above analysis, it can be seen that the Indonesian economy has been facing a downturn in the current state. The fall in the GDP growth rate and the increase in the unemployment and inflation rate can be controlled by using adequate monetary policy. The Bank Indonesia has been effectively worked in order to reduce the interest rate in the market and promote trade to maintain the current economic balance. On the other hand, the policymakers of Indonesia have reduced its spending to balance the deficit in its budget. Meanwhile, the monetary stance of BI has adequate plans to control the future growth of the Indonesian economy. References Dobson, W. (2013).Human capital formation and economic growth in Asia and the Pacific(1st ed.). London: Routledge, Taylor and Francis Group. Hadiwibowo, Y. (2016). Fiscal Policy, Investment and Long-Run Economic Growth: Evidence from Indonesia.Asian Social Science,6(9). Hudson, J. (2016).Inflation(1st ed.). Taylor and Francis. Indonesia GDP Annual Growth Rate. (2017).Tradingeconomics.com. Retrieved February 2017, from https://www.tradingeconomics.com/ indonesia/gdp-growth-annual Indonesia Inflation Rate. (2017).Tradingeconomics.com. Retrieved February 2017, from https://www.tradingeconomics.com/ indonesia/inflation-cpi Indonesia Unemployment Rate. (2017).Tradingeconomics.com. Retrieved February 2017, from https://www.tradingeconomics.com/ indonesia/unemployment-rate Indonesia's GDP growth slows to 4.9% in Q4. (2017).The Straits Times. Retrieved February 2017, from https://www.straitstimes.com/business/economy/indonesias-gdp-growth-slows-to-49-in-q4 Layard, R., Nickell, S., Eichhorst, W., Zimmermann, K. (2016).Combatting unemployment(1st ed.). Oxford: Oxford University Press. Lewis, W. (2013).Theory of Economic Growth(1st ed.). Taylor Francis. Permani, R. (2011). The Impacts of Trade Liberalisation and Technological Change on GDP Growth in Indonesia: A Meta Regression Analysis.Global Economy Journal,11(4). Rahadiana, R. Purnomo, H. (2016).Indonesias Economic Growth Slows to 5%, Matching Forecasts.Bloomberg.com. Retrieved February 2017, from https://www.bloomberg.com/news/articles/2016-11-07/indonesian-gdp-expands-5-in-third-quarter-matching-forecasts