Danamon Cuts 2016 GDP Outlook on Concerns Over China, Tax Collection
Jakarta. Bank Danamon Indonesia has cut its projection for Indonesia’s 2016 GDP growth to 5 percent, from an initial range of 5.1 to 5.3 percent, citing both domestic and international factors.
“The economy potentially may grow by 5 percent next year, a rebound but lower than our initial forecast due to potentially deeper slowdown in China and tax revenue problems,” Danamon economists Anton Hendranata and Dian Ayu Yustina wrote in the “Indonesia Economic Outlook 2016” report published on Tuesday.
“China’s slowdown will have a direct impact on the Indonesian economy as China currently is still the largest trading partner for Indonesia. Indonesia’s trade with China accounted for around 15 percent of Indonesia’s total trade.”
The International Monetary Fund is projecting growth in 2016 of 6.3 percent for China, down from 6.8 percent this year.
Danamon’s report also highlighted the unrealistically high tax revenue target set by the government in the 2016 budget.
“Risks to the domestic economy will mostly be from the financing side. The fiscal deficit is still set at a moderate level of 2.1 percent of gross domestic product. The problem however, remains on the tax revenue side that is set much higher than this year’s forecasted realization,” the economists wrote.
The 2016 target, at around 30 percent higher than this year’s expected realization, “will cause the fiscal deficit to widen, which will in turn require higher financing.” Should this happen at a time of market volatility, they went on, raising financing through selling bonds would be costly for the government, as transpired this year.
Danamon also cautioned of continued weakness in the rupiah, which has lost 10 percent of its value against the US dollar so far this year. Pressure on the currency was renewed earlier this month when the US Federal Reserve raised interest rated by 25 basis points to 0.5 percent, and remains high, possibly affecting “the perception on the economy.”
US investors are expected to repatriate their investment back to the United States following the Fed rate hike, causing massive capital outflows in emerging markets that offer high-yielding but riskier assets.
“Hence efforts must be focused on keeping the perception in the economy to stay positive, while continue pushing reforms across all sectors,” the Danamon report said.
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