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A Look at the Week’s Global Economic Events

We take a look at two global economic updates or interesting key developments that happened recently which investors can take note of. First up, we take a look at improvements that could happen to Indonesia’s economy for this year. Next, we’ll zoom in to the global economic forecast given by the World Bank’s economists.

Better Year ahead for Indonesia

According to the International Business Time’s recent article titled Indonesia Economic Outlook 2014: Stronger GDP Growth On Trade Balance Recovery And Lower Inflation, last year was a tough one for Indonesia.

For starters, the country’s currency, the Indonesian rupiah, had plunged from 9,793 rupiahs per US dollar at the end of 2012 to 12,171 rupiah per US dollar at the end of 2013. The worsening of the country’s current account deficit also pushed its government to reduce fuel subsidies significantly. This resulted in inflation edging up to 8.4% at the end of last year, nearly double the inflation rate experienced at the end of 2012.

In the same article, the International Business Times also reported that Standard Chartered’s research notes had estimated that real GDP growth for Indonesia had fallen from 6.2% to 5.6%.

Nevertheless, Indonesia is likely to expect its economic fundamentals to improve across the board as the 4th quarter of 2013 is already showing signs of recovery. According to information from the National Statistics Agency in Indonesia, the country’s trade surplus rose to US$777 million in November from just US$24 million in October.

Above all, as imports slows and the trade balance gets under control, the overall current account deficit is expected to fall back to US$26.9 billion in 2014, thus accounting for 3.1% of nominal GDP instead of the 3.7% figure in 2013. Assuming Indonesia’s GDP is going to expand 5.8% for this year, as expected by the same International Business Times article, the current account deficit should narrow.

Lastly, the news wire also reported how the Indonesian rupiah (IDR) is likely to remain under pressure in early 2014 amid uncertainty over the looming Indonesian governmental elections and the tapering of the United States Federal Reserve’s stimulus package .

But, Standard Chartered added that it “expect[s] the IDR to strengthen in H2, reaching 11,400 per US dollar by end-2014, once the election results are known and U.S. Fed tapering is in place.”

Companies such as IndoAgri (SGX: 5JS), Jardine Cycle & Carriage (SGX: C07) and First REIT (SGX: AW9U) might stand to benefit from the advance of the rupiah as their business operations are based in Indonesia but reported in other currencies.

Global Economy Is strengthening Into A Self-Sustaining Recovery

A year ago, people were still worried about high unemployment rates across the developed nations and slowing growth in emerging markets. Now, in January 2014, the consensus view is that there is growth springing out everywhere; the US recovery is on track; Europe has gotten out of its prolonged recession; and Japan has finally experienced both growth and inflation due to “Abenomics“.

According to the World Bank’s latest Global Economics Prospects report released on 14 January 2014, the organisation’s economists anticipate the global economy to perform better this year and projected global GDP growth rates to expand from 2.4% in 2013 to 3.2% this year, stabilizing at 3.4% in 2015 and 3.5% in 2016.

The World Bank added that growth from developed countries are accelerating and will spill over to the developing countries such as China and India, a departure from recent years when the latter alone pulled the global economy forward while the former languished in normality.

“For the first time in five years, there are indications that a self-sustaining recovery has begun among high-income countries – suggesting that they may now join developing countries as a second engine of growth in the global economy,” Kaushik Basu, chief economist and senior vice president of The World Bank, wrote in the report’s foreword.

The report also cautioned however, that “Rising global interest rates and potential volatility in capital flows, as the U.S. Federal Reserve begins withdrawing massive monetary stimulus, will keep growth prospects vulnerable”.

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