Slowdown in China Puts Indonesia at Risk, Says Economist

President Donald Trump declared China the 'grand champions' of currency manipulation on Thursday (23/02), just hours after his new Treasury secretary pledged a more methodical approach to analyzing Beijing's foreign exchange practices. (Reuters Photo/Petar Kujundzic)

By : Tabita Diela | on 7:12 PM December 21, 2015
Category : Business, Economy, Featured

Jakarta. The economic slowdown in China will put Indonesia at a greater risk than other global challenges next year due to its implication to commodity prices and the rupiah exchange rates, according to Leo Putra Rinaldy, an economist with Mandiri Sekuritas.

"There are two global risks, including the hike of Fed Fund Rate and China's slowing economic growth. The Fed Rate hike will be gradual and limited. ... I am more concerned about [the economic slowdown in] China," Leo said on Monday.

For the past year, Indonesia and other commodity-driven countries have been hurt by a lower export demand and falling commodity prices due to, among other things, China's slower economic growth. Chinese growth slowed to a six-year low of 6.9 percent in the third quarter.

"China is transforming from an investment-driven country to consumption-driven. However, China's higher car sales and consumer goods sales can't boost its economy as intended. If China has a hard landing, the impact will be in the real sector. China will become a greater risk than the Fed Fund Rate [increase]," Leo said.

The rupiah exchange rate is related to the export-import mechanism between Indonesia and its trade partners. Lower exports might cause a deficit in Indonesia's current account and affect both supply and demand for the rupiah against other currencies.

"There is a potential for China to devaluate further. When the Special Drawing Rights announced [by the International Monetary Fund], the market-driven yuan in still devaluating ... The yuan's movement will largely be affected by Chinese growth. If China's economic growth slows and the country keeps cutting interest rate, the yuan will depreciate," Leo said.

The Indonesian government expects the economy to grow at 5.3 percent next year, up from this year's 4.8 percent forecast by Finance Minister Bambang Brodjonegoro.

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