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Low Soo Peng Economics in Theories
1. Washington State Export Destinations 2011 Value (Millions) % Share
Top 25 Markets and % Share of State Total $56,669 87.5
1 China 11,233 17.3
2 Canada 8,547 13.2
3 Japan 6,468 10.0
4 Korea, South 3,261 5.0
5 United Arab Emirates 2,753 4.3
6 Hong Kong 2,079 3.2
7 United Kingdom 2,017 3.1
8 Turkey 1,760 2.7
9 Australia 1,718 2.7
10 Taiwan 1,715 2.6
11 Indonesia 1,587 2.5
Asian Markets as Share of Washington State Exports = 46 %
Worth over $26
billion in 2011
16. Singapore, 1.5% 19. Malaysia, 1.3% 22. Philippines, 1.2% 24. India, 1%
Source: US Census Bureau
2. CHINA – 2012 IN REVIEW
Leadership Transition
Slowing economic growth
Local government debt situation
Falling real estate prices
Debt problems, slower growth, weak
export demand
Increased outbound investment
Continued friction in the South China
Sea
5. CHINA – 2013 OUTLOOK
Economic growth stable
Exports remain depressed
Real estate prices
declining
Debt problems slow
growth
Continued emphasis on
innovation
Increased outbound
investment
6. OVERALL SLOWING ECONOMIC
GROWTH
-1
0
1
2
3
4
5
6
7
8
Optimistic Base Pessimistic Optimistic Base Pessimistic
Total FactorProductivity
Capital Contribution
LaborComposition
LaborQuantity
Percentgrowth, y-o-y
Sources: The ConferenceBoard Global Economic Outlook 2013,https://www.conference-board.org/data/globaloutlook.cfm?
2013-2018 2019-2025
7. CHINA – GROWTH AREAS IN 2013
Planning for Demographic changes
Renewable energy
Online retailing
Infrastructure
Construction / real estate
Pollution mitigation and control
Clean and green food products +
investment in overseas agriculture
Expanded acquisition of overseas
8. CHINA – 2013 RISK FACTORS
Diaoyutai / Senkaku Conflict
Pollution
Corruption & Anti-corruption efforts
Rising costs
Economic inequality
Bankruptcy of some smaller cities
Growth of unregulated lending sector
10. 2012 HIGHLIGHTS
Indonesia
Financial
Services
Authority
(OJK)
formed
Moody’s
upgrades
sovereign
credit rating
to investment
grade: Baa3
from Ba1
(Outlook:
Stable)
Central
Bank
lowers BI
rate to
5.75%
(from 6%)
Largest
contract in
commercial &
Boeing
history: Lion
Air order of
230 Boeing
737 airplanes
worth $22.4
billion
Garuda
named
“Best
International
Airline”
Foreign
exchange
reserves hits
highest level
(2012) of
$114.93
billion
S&P affirms
sovereign
credit rating
at BB+
(Outlook:
Positive)
Jakarta elects
new Governor
Joko (Jokowi)
Widodo (snubs
political
establishment)
McKinsey
releases
“Unleashing
Indonesia’s
Potential
Report”:
Now 16th.
2030, could
be world’s
7th largest
economy,
surpassing
Germany &
UK)
Indonesia
tops
Nielson
Global
Consumer
Confidence
Survey (Q3
2012) with
score of
119,
(alongside
India).
Fitch
affirmed
sovereign
credit
rating at
BBB-
(Outlook:
Stable)
Indonesia, as
next APEC
Chair,
announces
2013 logo &
theme:
Resilient Asia-
Pacific –
Engine of
Global Growth
January
January 18
January
February
February
April
April 23
September
September
November
November 21
December
11. GOOD BUT LOWER PERFORMANCE:
WHY?
• Crisis in Europe & recession in US
• Instability in Middle East & Africa
• Slower economic growth in emerging countries esp. China & India
• Trade imbalance with declining exports (& burgeoning imports)
Global economic
uncertainty
• Overburdened airports: Jakarta’s CGK at beyond capacity past 6 years
• Poor condition of ports: Unable to keep up with economic growth
• Bad roadways, bad traffic; floods
• Poor connectivity between towns/cities/regions
• Policies & regulations deemed as hindrance to businesses
Weak infrastructure &
high logistics costs
Government initiatives
Strong domestic consumption
driven by emerging middle
class
Influx of investments
• Master Plan MP3EI (2011- 2025): Economic development
• Master Plan MP3KI (2011- 2025): Poverty reduction
• Tax incentives
• Highest contributor to economy: ≅ 2/3 of GDP
• 240 million (World’s 4th most populous nation)
• 45 million consuming class (to to 135 million in 2030)
• Robust consumer confidence with surge in government & private sector
projects
• Second biggest contributor: ≅ 30% of GDP
• Regaining of investment grade: Fitch in Dec. 2011 & Moody’s in Jan. 2012
• AT Kearney FDICI: Ranked #9 in the world (from 19 in 2010)
• 2012 realization may top $31 billion (Rp. 300 trillion), a record
12. OUTLOOK FOR 2013 POSITIVE
Annual GDP growth target set at 6.8 % (BI forecast: 6.3% - 6.8%)
Domestic consumer demand 65% of GDP = less vulnerable to Europe & US drag
Fitch: Affirmed RI’s investment grade at BBB- (stable outlook); boost joining BRICS
Investment realization targeted to increase to Rp. 390.3 trillion (FDI $29 billion)
Household consumption (to 5.8 – 6.3%) & investment (to 10%) will continue to drive
growth
Govt set inflation rate assumption at 3.5% - 5.5%
Government to hold BI rate steady at 5.75% (since March 2012)
Per capita income rising & middle class growing (to expand to > ½ total population)
Oil & gas investment to increase: $26.2 billion: 274 work plans & budgets approved
Exploding gas demand = efforts to reduce exports + expand downstream capacity
Sales of capital goods, including machine tools, will rise 8% to $27 billion
13. RISKS & CONCERNS
Endemic
corruption/Judiciary a
problem: 118
in list of 176 countries
(Transparency International)
Rising inflation from
domestic fuel subsidies &
power tariff hike
Weak institutions &
bureaucratic
inefficiencies: 128 out of
185 globally
(World Bank’s Doing Business)
Political uncertainty:
2014 elections
Infrastructure congested
& inadequate to support
growth; respond to
natural disasters
Lack of institutions with
strong capital structure to
finance planned projects
Crisis in developed
world: Threaten exports,
foreign liquidity,
investment growth
Emerging trend of trade
deficits fueling current
account deficits & hurting
the Rupiah
Under-developed HR:
Low-skilled workforce +
Minimum pay increase
not matched with
increase in productivity
14. REASONS TO BE OPTIMISTIC +
OPPORTUNITIES
Master plans to guide
development & growth:
Impetus for change
Relative political &
economic stability:
Conducive to business
Strong & growing
domestic demand: Fuel
growth, limit exposure
to external shocks
Poverty reduction
means growing middle
class
Growing middle class
means better qualified
workforce & bigger
market
Positive investment
outlook thanks to strong
economic fundamentals
Abundance of fertile
land & natural
resources
Financial markets
poised for volatility:
Stock market to
maintain good
performance
Financial stability:
Investor confidence
evident in influx of
capital investment
GDP for 2012 expected to grow 6.3%. Target: 6.2% - 6.7%.Inflation: Remains low, 4.3%. Target: 4.5% ±B/P: Surplus in spite of pressures on C/A deficit (affected by lower demand from China; 2.4% of GDP in 2012)Supported by increasing direct & portfolio investment. = International reserves at end Dec. 2012 reached $112.8 b (equivalent to 6.1 months of imports &govt external debt services.Fiscal deficit: More of a problem than 2011. Prime culprit: energy subsidyDebt to GDP ratio: Indonesia & India only emerging countries to have shrunk public debt (between 2007 & 2011). - Even lower in 2012 at 23.3%.
OJK:OtoritasJasaKeuanganAfter 14 years, Indonesia regains investment grade at Moody’s for the first time since Asian financial crisis. = Brings Indonesia to lowest investment grade (Baa3), same level as India. Indonesians stole limelight at S’pore Air Show. Option for 150 more aircraft ($14b). Total value: $36 billion.= > 100k US jobs.- 1st delivery 2017; the rest until 2025. Sale will be paid of over 12 years. - Lion Air: Leading airline with about 40% share of the mkt.- Domestic travel has grown 20% in recent years; mkt expected to dbl in next 5 years, reach 100mNote re: Indonesian aviationJakarta surpassed S’pore& BKK to become SE Asia’s busiest airport (by passenger traffic).For 12 mths ending Sept 2010, CGK recorded 42.5 m passenger movements to become world’s 16th busiest airport. 43.7 m passengers in 2010; 18% average yearly growth. To expand capacity: 60 m by 2016.Jokowi:- Voted 2012 3rdBest Mayor in the World by City Mayors FoundationMcKinsey:- Also surpassing BRICS nations India, Russia, Brazil…Nielson:- Went down 1pt; was at 120 (India: no change).
1. Vulnerable to shocks Slower growth esp. compared with 2 years ago (esp. India: from 9% to 5.5 – 6%)2.Soekarno-Hatta: > 51m passengers/year, over double designed capacity Cements costs 10x more on outer islands than Jkt after traveling through antiquated port system. 2010 World Bank Logistics Performance Index (LPI): Indonesia 75 out of 150 countries surveyed Logistic costs: 25 – 30%. M’sia: 15%, US & Japan: 10%, Thailand 16% Cost of shipping from regions to capital = local fruits more expensive than imported from China3. MP3EI: Acceleration & Expansion of Economic Development= Aims to be one of world’s biggest economies by 2025) MP3KI: Acceleration & Expansion of Poverty Reduction-- 60 m poor & near poor (24% of total population; 2007: closer to ½)- Tax incentives:Boost downstream investment; outside Java & Bali (East Indonesia)129 business sectors eligible for tax allowance4.McKinsey report: Consuming class defined as individual with an annual net income of above $3,000 [DOUBLE CHECK] at 2005 purchasing power parity (PPP)Consumer Confidence Index (CCI): 116.6 in Dec (Nov: 114.3, Jan. 13: 119.2) point. Yearly high of 117.7 in Sept. 12.5. Investment realization tgt was 283 trillion; may hit 308 trillion.Govt shooting for 390 trillion in 2013Strong fundamentals e.g. macroeconomic stability
BI: Economy could grow 6.7% - 7.2% in 2014FDI: Expected to have hit $21 b this yearGas: expected to grow 9% to 4,020 billion BTU/day (from 3,615 billion BTU/day) In the past 8 years, gas has increased by 250%, mostly demand from power plants, manufacturing industry & fertilizer plants National interest: Need to rebalance exports & domestic sales. For 1st time: export allocation will be < for domestic use(Indonesia is 3rd largest exporter after Qatar &M’sia.) Single largest holder of proven gas reserves in the world.
2012:World economy contracted, only grew 3.5% (2011: 3.9%)Fuel subsidies:- 2013: subsidies amount to Rp. 274 trillion; expected to breach Rp. 300 mKADIN (Indonesian Chamber of Commerce & Industry) recommends reducing the subsidy by $150 trillion (80% goes to people who can afford unsubsidized rates) Will = bigger budget for regional infrastructure developments = big push to develop these areas (can allocate Rp. 4 – 5 trillion to each area).Poor infrastructure:- Increase cost to produce & sellJan Flood: - Affected 74 urban wards in 31 sub-districts across Jkt’s 5 municipalities- Covered 41 sq km of land (approx. 8% of Jkt’s total area) Claimed at least 17 lives Claims to exceed Rp. 15 trillion for the 2007 Greater Jkt area flood (Indonesia General Insurance Association)- State-controlled BNI: $665,000 in losses (damage to branches & ATMs) Inundated >97,000 houses Forced 18,000 people from their homes Caused 8,000 people to suffer flood-related illnesses- Renewed talks about moving capital fromJktcos of its inability to copeFor years until 2012, no monthly trade deficit. 6 between April & November (record $1.4 b in Oct, narrowed in Nov.) Rising imports coupled with falling exports = $1.33 b deficit in the 1st 11 months (compared with $25.4 b surplus a year ago)!!! Import growth 2 – 3 x higher than export growthRp weakened ≅6% against the dollar in 2012 = Worst performing Asian currency last year Deficits will pressure the Rp. = Need to manage Some analysts see Rp weakening further, as much as 3% in 2013 Central Bank hopeful deficit will decline to “sustainable level” this year, as global economy improves &dd for Indonesia’s exports e.g. crude oil, coal & palm oil increases.Lack of strong institutions:- Bureaucratic inefficiency & corruption = govt budgets w could provide stimulus (because of falling public debt) often not spent.Govt spending not optimal (to facilitate growth & rebalancing)Regional min wage:Average increase of the Provincial Min Wage (UMP: Upah Min Kabupaten/Kota) is set at abt 18.3% (up from 10.27 in 2012). Highest regional wage increase (2012) recorded in E Kalimantan: 48.86% from Rp. 1,177,000 to Rp. 1,752,013 in 2013 Lowest UMP recorded in W Sulawesi: 31.37% from Rp. 1,127,000 to Rp. 1,165,000 in 2013.Jkt admin pinned min wage at Rp. 2.2 m in 2013, an increase of 44% from last year.
Indonesia’s PotentialFinancial markets:The JCI (Jkt Composite Index) grew by 12.9% in 2012 Has been performing very well in the 1st weeks of 2013 Asian shares have been posting strong gains on news of China’s better-than-expected pick-up in its economy so far this year- Business sectors catering to domestic consumers will retain their position as champions of the bourse