Economic and market outlook 2023

Glimpse of hope?

January 2023

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investors. The information contained has been taken from sources which we deem reliable. No warranty is made to the accuracy and completeness of the information. However,
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Economic updates
Global
 Central banks around the world have conducted the most aggressive interest rates
hikes this year to fight inflation running well above targets in many months.
 Inflation have slowdown in many economies, seeing more moderate hikes in 1H23
 Global economy is slowing down, expecting recession in major economies in 2023,
including US, UK, and EU.
 Lower inflation in 2023 should support global bond performance this year.

Indonesia
 Indonesia’s economic recovery is on track throughout 3Q22, people’s mobility and
consumption continue to recover, while external balance remains strong.
 Fiscal balance is quite solid, with sooner than expected consolidation in 2022.
 BI conducts the most aggressive tightening since 2005-2006 to manage inflation
and currency depreciation.
 Market updates

2 PT.Mirae Asset Sekuritas Indonenesia

JCI’s compared to other global indices
• JCI during the first two week trading was down, having decreased by 3.0% YTD
amidst higher global equity indices.

• Hang Seng recorded strongest performance due to China’s reopening optimism.

JCI, Dow Jones, Nikkei YTD change in global indices

(pts) JCI (L) Dow Jones (R) Nikkei (R) (pts) YTD 2023 2022 (%)

7500 39,000 Hang Seng 9.9

South Korea 6.7

7000 37,000
Philippines 5.9

35,000 US (Dow Jones) 3.5

6500 3.4
China
33,000 Brazil 1.9
6000
Singapore 1.3
31,000
Russia 1.0
5500
29,000 Japan 0.1
Malaysia (0.0)
5000 27,000
India (0.9)
Indonesia (3.0) 4.1
4500 25,000
-40 -30 -20 -10 0 10 20

Source : Mirae Asset Sekuritas Indonesia Research

3 PT.Mirae Asset Sekuritas Indonenesia

Capital flows in Indonesia’s equity market
• Foreign investors recorded a significant capital outflows in Indonesia’s equity
market after significant inflows in 2022.

• Indonesia’s equity market recorded a net foreign capital inflows of IDR68.7tr

(USD4.1bn) in 2022.

Monthly net flows in Indonesia equity Weekly net flows in Indonesia equity
market market
(IDRtr) (IDR tr) Week 1 Week 2 Week 3 Week 4 Week 1 Week 2
50 Dec 22 Dec 22 Dec 22 Dec 22 Jan 23 Jan 23
40.1 0
40
-1
30 -2
17.5
20 -3 -2.3 -2.2
11.3
6.1 8.4 7.5 -3.0
10 3.0 -4 -3.4
0.7 -3.9
0 -5

-10 (3.6) (2.3) (2.2) -6

(7.5)
-7
-20
(20.9) -8
-30
-9
-8.6
-10

Source : Mirae Asset Sekuritas Indonesia Research

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Bond market records solid performance early in January
• Indonesia 10Y government bond yield closed at 6.88% (-25.6bps YTD) during the 2nd
week in 2023, together with lower government bond yield globally.

• The 10Y UST yield at the same time traded at 3.44% (-43.2bps YTD) after signs of
cooling US inflation number.

10Y Indonesian government and Change in global government

UST yield bond yield
(%) UST 10Y (L) Indo GB 10Y (L) (%) (bps) YTD 2023 2022
4.6 8.0
-48.2
South Africa
4.1 Germany -46.7
7.5 -43.2
US 236.5
3.6
UK -36.5 270.1
7.0 -25.6
3.1 Indonesia 55.8
Thailand -25.6
2.6 6.5
Malaysia -12.9
2.1 India -2.8
6.0 5.9
1.6 China
Japan 9.0
1.1 5.5
4/21 6/21 8/21 10/21 12/21 2/22 4/22 6/22 8/22 10/22 12/22 -100 0 100 200 300

Source : Statistics Indonesia, Mirae Asset Sekuritas Indonesia Research

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Significant inflows in Indonesian GB market
• Lower yield in Indonesian GB yield is supported by massive inflows in Indonesian
GB market since November 2022.

• Foreign investors currently (as of January 12th) owned IDR778.5tr of Indonesian GB

(14.6% of total GB outstanding).

Monthly net flows in Indonesia Weekly net flows in Indonesia

government bond market government bond market
(IDRtr) (IDRtr)
30 23.7 25.3 30
20
9.3 8.3
10 6.7 25
0
20
-10 (4.1)
-20 (15.5) 15
(17.0)
(20.4)
-30
(32.1)
(29.1) (29.3) 10
-40
-50 5
(48.3)
-60
0
Week 1 Week 2 Week 3 Week 4 Week 1 Week 2
Dec 22 Dec 22 Dec 22 Dec 22 Jan 23 Jan 23
Source : Ministry of Finance, Mirae Asset Sekuritas Indonesia Research

6 PT.Mirae Asset Sekuritas Indonenesia

Sharp appreciation in Rupiah against USD
• Rupiah closed at IDR15,150 against USD, appreciated by 3.1% WoW, strongest level
since September 2022.

• The USD index (DXY) is trending down, as US inflation fuels hopes on slower path of
policy rate increase in US.

USD/IDR and USD index (DXY) Major currencies against USD

(IDR) USDIDR (L) USD index (R) (pts) (pts) JCI (L) Dow Jones (R) Nikkei (R) (pts)

16,000 118 7500 39,000

15,800
113 7000 37,000
15,600
15,400 35,000
108 6500
15,200 33,000
15,000 103 6000
31,000
14,800
98 5500
14,600 29,000
14,400 5000
93 27,000
14,200
14,000 88 4500 25,000

Source : Statistics Indonesia, Mirae Asset Sekuritas Indonesia Research

7 PT.Mirae Asset Sekuritas Indonenesia

 Global economy

8 PT.Mirae Asset Sekuritas Indonenesia

More signs of cooling US’ inflation

• US headline inflation decreased to 6.5% YoY in December (vs. 7.1% YoY in

November), or -0.1% MoM.

• The biggest reason come from sharp drop in gasoline price.

US CPI inflation and policy rate US inflation expectation

Headline inflation Core inflation Median one-year ahead expected inflation rate
Core PCE inflation Upper inflation target (%, YoY)
(%, YoY) Median three-year ahead expected inflation rate
Policy rate
10 8
9 7
8
6
7
6 5
5 4
4
3
3
2 2
1 1
0
4/16 11/16 6/17 1/18 8/18 3/19 10/19 5/20 12/20 7/21 2/22 9/22 0
6/16 12/16 6/17 12/17 6/18 12/18 6/19 12/19 6/20 12/20 6/21 12/21 6/22 12/22

Source : US Bureau of Labor Statistics, Federal Reserve, Mirae Asset Sekuritas Indonesia Research

9 PT.Mirae Asset Sekuritas Indonenesia

Employment situation in US
• US unemployment rate fell to 3.5% in December (vs. 3.7% in the previous month
and market’s consensus).

• Nonfarm payrolls rose by 223k at the same time (vs. 200k consensus) with average
hourly earnings up 4.6% YoY (vs. 5.0% YoY consensus).
US monthly change in US unemployment rate and
private payrolls Average hourly earnings growth
(000' people) (%) Unemployment rate (L) (%, YoY)

800 9 9
714 Average hourly earnings growth (R)
8
700 8
7
600 537 7
6
500
6 5
400
5 4
300 3
223 4
200 2
3
100 1

0 2 0
12/20 3/21 6/21 9/21 12/21 3/22 6/22 9/22 12/22

Source : US Bureau of Labor Statistics, Mirae Asset Sekuritas Indonesia Research

10 PT.Mirae Asset Sekuritas Indonenesia

Expecting a more moderate pace of rate increase throughout 1H23
• We believe that policy rate increase by The Fed will continue in the next few FOMC
meetings. The path of future fed funds rate hikes will be largely depend on the
upcoming data.

• We reiterated our view of terminal rate at 5.0% in 1H23

FOMC dot plot in September 2022 FOMC dot plot in December 2022

11 Source : Federal Reserve, Mirae Asset Sekuritas Indonesia Research PT.Mirae Asset Sekuritas Indonenesia
World economic outlook: expecting recession in some major economies
• Expecting some major economies to enter recession, starts from EU and UK.

• US economy most probably will enter recession in 2Q23-3Q23.

Policy rates in advanced economies

(%) 2020 2021 2022e 2023f 2024f

10
8 6.6
6 4.8
4.3
3.6
4
1.7 1.4
2 0.5 1.0 0.8
0.0
0
-2
-4
-6
-8
World United Euro area Japan China Indonesia Thailand India South Africa Brazil
States

Source : World Bank, Mirae Asset Sekuritas Indonesia Research

12 PT.Mirae Asset Sekuritas Indonenesia

US economy rebound in 3Q22, but it will not sustain
• US economy grew at higher-than-expected pace in 3Q22 by 2.6% QoQ (vs. 2.3%
QoQ consensus).

• We believe that overall rebound in US economic growth will not be sustained, as

exports growth will soon fade and domestic demand will turn negative, resulted
from higher interest rates.

US quarterly GDP growth US GDP growth by components

Household consumption Investment
(%, QoQ)
(%, QoQ) Exports Imports
8
40 Government spending
7
6
30
5
4 20
3
2 10
1
0 0

-1
-10
-2
-3
-20
4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22
4Q20 1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22

Source : US Bureau of Labor Statistics, Federal Reserve, Mirae Asset Sekuritas Indonesia Research

13 PT.Mirae Asset Sekuritas Indonenesia

Global manufacturing activities are slowing
• Manufacturing PMI in the Eurozone have indicated a contraction since July and
stood at 46.4 in October, lowest since May 2020.

• Meanwhile for UK, manufacturing PMI shows contractions in the past 3 months and
plummeted to 46.2 October (vs. 47.3 and 48.4 respectively in August and
September).

PMI manufacturing in advanced economies PMI manufacturing in emerging economies

United States Eurozone Indonesia China India

(pts) (pts)
70 United Kingdom Japan Brazil Turkey
70
65 65

60 60
55
55
50
50 45
45 40
35
40
30
35
25
30 20
4/20 7/20 10/20 1/21 4/21 7/21 10/21 1/22 4/22 7/22 10/22 4/20 7/20 10/20 1/21 4/21 7/21 10/21 1/22 4/22 7/22 10/22

Source : Statistics Indonesia, Mirae Asset Sekuritas Indonesia Research

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Weakening in UK and Eurozone
• UK economy contracted by 0.2% QoQ in 3Q22 (vs. 0.2% QoQ expansion in 2Q22)
due to slowing services, production, and construction industries.

• Consumer confidence in Eurozone has plunged significantly, suggesting that a

recession will be severe.

USDIDR and USD index (DXY) Global currencies against USD

(%, QoQ) (pts) EU economic sentiment EU employment expectation

7.0 120
6.0
115
5.0
4.0 110
3.0
105
2.0
1.0 100

0.0
95
-1.0
90
-2.0
1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22

Source : Mirae Asset Sekuritas Indonesia Research

15 PT.Mirae Asset Sekuritas Indonenesia

Monetary tightening continues with slower pace
• Many central banks in the world have conducted the most aggressive interest rates
hikes in 2022 to fight inflation running well above targets in many months.

• We expect The Fed, BoE, and ECB will slow the pace of rises in interest rates due to
combination of weakening economies and easing domestic price pressures.

Policy rates in advanced economies Policy rates in emerging economies

US UK Canada
(%) Indonesia India Malaysia
Australia Eurozone Japan (%)
Sweden Philippines Thailand China
4.5
7
4.0
3.5 6
3.0 5
2.5
4
2.0
1.5 3
1.0 2
0.5
1
0.0
-0.5 0
1/20 4/20 7/20 10/20 1/21 4/21 7/21 10/21 1/22 4/22 7/22 10/22

Source : Mirae Asset Sekuritas Indonesia Research

16 PT.Mirae Asset Sekuritas Indonenesia

 Indonesia’s economy

17 PT.Mirae Asset Sekuritas Indonenesia

 People’s mobility is softening resulted from higher subsidized fuel price

Retail & recreation Grocery & pharmacy Parks

(pts) (pts) (pts)
60 80 250

200
40 60
150
20 40
100
0 20 50
-20 0 0

-40 -20 -50

-100
-60 -40

Transit stations Workplaces Residential

(pts) (pts) (pts)
30 40 30
20
10 20 25
0
-10 0 20
-20
-20 15
-30
-40 -40 10
-50
-60 -60 5
-70
-80 -80
0

Source : Google, Mirae Asset Sekuritas Indonesia Research

18 PT.Mirae Asset Sekuritas Indonenesia
Indonesia’s economy remains solid, entering the year of uncertainties
• In 3Q22, Indonesia’s economy continues reporting solid performance, with higher-
than-expected GDP growth at 5.7% YoY (vs. consensus/our forecast at 5.6% YoY).

• We believe this year’s recovery will resume, with FYGDP growth at 5.08% (vs. 3.69%
in FY21).
GDP growth vs consensus Indonesia’s annual GDP growth

(%, YoY)
GDP growth (realization) (%)

5.8 GDP growth (consensus) 5.72 6

5.03 5.07 5.17 5.02 5.08
5.60 5
5.6
5.45 4 3.69
5.4
3
5.20
5.2 2
5.02
5.0 4.95 1

4.8 0

-1
4.6
-2
4.4 -2.07
1Q22 2Q22 3Q22 -3
2016 2017 2018 2019 2020 2021 2022F

Source : Statistics Indonesia, Mirae Asset Sekuritas Indonesia Research

19 PT.Mirae Asset Sekuritas Indonenesia

Some of the pandemic affected sectors grew stronger
• Growth of transportation industry continue to accelerated to 25.8% YoY in 3Q22 (vs.
21.3% YoY in 2Q22).

• Accommodation, food, and beverage growth accelerated to 17.8% YoY (vs. 9.8% YoY)
as people’s mobility and immunity continue improving.

1Q21 2Q21 3Q21 4Q21 1Q22 2Q22 3Q22

Agriculture, Forestry and Fisheries 3.4 0.5 1.4 2.3 1.2 1.4 1.6
Mining & Quarying (2.0) 5.2 7.8 5.2 3.8 4.0 3.2
Manufacturing (1.4) 6.6 3.7 4.9 5.1 4.0 4.8
Electriciy and gas supply 1.7 9.1 3.9 7.8 7.0 9.3 8.1
Water supply, sewerage, waste manageme 5.5 5.8 4.6 4.1 1.3 4.5 4.3
nt and remediation activities
Construction (0.8) 4.4 3.8 3.9 4.8 1.0 0.6
Wholesales and Retail Trade (1.3) 9.5 5.2 5.6 5.7 4.4 5.3
Transportation and storage (13.1) 25.1 (0.7) 7.9 15.8 21.3 25.8
Accommodation, Food and Beverage (7.3) 21.6 (0.1) 4.9 6.6 9.8 17.8
Information and communication 8.7 6.9 5.5 6.2 7.2 8.1 6.9
Financial and insurance (3.0) 8.3 4.3 (2.6) 1.6 1.5 0.9
Real estate 0.9 2.8 3.4 3.9 3.8 2.2 0.6
Business services (6.1) 9.9 (0.6) 0.9 6.0 7.9 10.8

Source : Statistics Indonesia, Mirae Asset Sekuritas Indonesia Research

20 PT.Mirae Asset Sekuritas Indonenesia

PMI manufacturing decreased but remains in a expansion level
• Indonesia’s PMI manufacturing decreased to 50.1 in 4Q22 (vs. 53.7 in
3Q22), lowest since 3Q21.

• PMI is expected to rebound in 1Q23, driven by higher volume of production, orders,

as well as higher inventory.
Prompt manufacturing index PMI by sectors
(pts) (pts)
PMI
58 60
PMI 58 Food, beverages and
56
tobacco
54 56
Production Volume Textile, leather products
52 54 ang footwear
Order Volume Wood products & other
50 52
wood products
50 Paper and printing
48 Speed of Supplier
Delivery Time 48
46 Fertilizers, chemicals and
Inventory 46 rubber products
44
Cement and non metalic
44
42 mineral products
Labour
42 Iron and basic steel
40
1Q22 2Q22 3Q22 4Q22 1Q23F 40
Transport equipment,
1Q22 2Q22 3Q22 4Q22 1Q23F
machinery & apparatus

Source : Bank Indonesia, Mirae Asset Sekuritas Indonesia Research

21 PT.Mirae Asset Sekuritas Indonenesia

Expecting household consumption to rebound in 2Q23
• We see signs of moderating domestic consumption as a result of higher subsidized
fuel prices in September.

• We estimate household consumption will rebound in 2Q23.

Buying durable goods index by

Consumer confidence by expenditure level
expenditure level
Consumer Confidence Current Economic Condition
(pts) (pts) IDR1 - 2mn IDR2.1 - 3 mn IDR3.1 - 4mn
Consumer Expectation
IDR4.1 - 5mn > IDR5mn
160
135
140
125
120
115
100 105
80 95

60 85

40 75

20 65

0 55
9/20 11/20 1/21 3/21 5/21 7/21 9/21 11/21 1/22 3/22 5/22 7/22 9/22 11/22 5/20 8/20 11/20 2/21 5/21 8/21 11/21 2/22 5/22 8/22 11/22

Source : Bank Indonesia, Mirae Asset Sekuritas Indonesia Research

22 PT.Mirae Asset Sekuritas Indonenesia

Inflation remains manageable
• Indonesia’s headline inflation in December came in higher at 5.5% in November (vs.
5.4% YoY in November).

• Overall domestic inflation in Indonesia remains manageable considering the impact

of the subsidized fuel price hike.

Headline, core, and targeted

Yearly inflation (2011-2022)
inflation
(%, YoY) Upper bound Lower bound
(%, YoY)
10 Headline Inflation Core Inflation
9 8.4
9 8.1
8
8
7
7
6 5.5
6
5 5
3.8 3.7 3.6
4 4 3.4
3.0 3.1
3 3 2.6
1.7 1.9
2 2
1 1
0 0
4/16 12/16 8/17 4/18 12/18 8/19 4/20 12/20 8/21 4/22 12/22 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source : Statistics Indonesia, Mirae Asset Sekuritas Indonesia Research

23 PT.Mirae Asset Sekuritas Indonenesia

Monetary policy response in January 2023
• We believe that monetary policy will continue to focus to bring down the expected
inflation, so that the core inflation can be maintained within the 3±1% YoY target.

• We expect that there will be another 25 bps increase in BI 7-Days Reverse Repo Rate
in January BI Board of Governors’ meeting to 5.75%
Policy rates Interbank rates
(%) (%)
BI7DRR Deposit Facility Lending Facility Overnight 1M 3M 6M 12M
7 9

8
6
7

5
6

4 5

4
3
3

2
2
12/17 6/18 12/18 6/19 12/19 6/20 12/20 6/21 12/21 6/22 12/22
5/18 9/18 1/19 5/19 9/19 1/20 5/20 9/20 1/21 5/21 9/21 1/22 5/22 9/22

Source : Mirae Asset Sekuritas Indonesia Research

24 PT.Mirae Asset Sekuritas Indonenesia

Loan growth continues to accelerate with stable asset quality
• Banking industry’s loan growth continued to accelerate, reaching 11.95% YoY in
October (vs. 11.0% YoY in September), the highest in nearly 4 years.

• Asset quality improved as NPL fell to 2.78% in September (vs. 2.88% in August).

Banking industry loans Banking industry NPL

(IDRtr) Loan (L) Growth (R) (YoY, %) (%)
6,500 14 3.6
6,300 12
3.4
6,100 10
3.2
5,900 8
5,700 6 3.0

5,500 4 2.8
5,300 2
2.6
5,100 0
4,900 -2 2.4

4,700 -4 2.2
4,500 -6
2.0
1/19 5/19 9/19 1/20 5/20 9/20 1/21 5/21 9/21 1/22 5/22 9/22

Source : BI, OJK, Mirae Asset Sekuritas Indonesia Research

25 PT.Mirae Asset Sekuritas Indonenesia

Macroprudential and banking sector policy remains accommodative
• Macroprudential policy remains accommodative to support loan growth, including
maintaining relaxation of loan to value (LTV)/financing to value (FTV) ratio at maximum 100%.

• OJK extends loan and financing restructuring, previously ended in March 2023 to March 2024
to anticipate the impact of global recession. Restructured loan impacted by pandemic was at
IDR520tr in September, lowest since May 2020.

Loan growth by types Restructured loans

(%, YoY) Total Loans Working Capital (IDR tr)

Investments Consumptions 1,100

19
1,000 971

14 900
792
800
9
700

4 600 560
520
500
-1
400
-6 300
11/19 2/20 5/20 8/20 11/20 2/21 5/21 8/21 11/21 2/22 5/22 8/22 9/20 12/20 3/21 6/21 9/21 12/21 3/22 6/22 9/22

Source : BI, OJK, Mirae Asset Sekuritas Indonesia Research

26 PT.Mirae Asset Sekuritas Indonenesia

 Summary

27 PT.Mirae Asset Sekuritas Indonenesia

Indonesia’s economic outlook 2023 : Softer pace of expansion
• We expect Indonesia’s GDP growth will experience a slowdown in FY23 at 4.88% (vs.
FY22 forecast of 5.08%), resulted from tight monetary policy and global recession.
• Fiscal consolidation will limit contribution of government’s spending to next year’s
growth.
• Inflation will moderate as foods’ supply remains under controlled, while BI
continues hiking policy rate with more moderate pace.
2022F 2023F 2024F

GDP Growth (%) 5.08 4.88 5.12

Household consumption (%) 4.88 4.84 5.09

Government spending (%) -8.48 -1.40 3.25

Investment (%) 5.27 6.00 6.05

Exports (%) 18.92 11.65 10.05

Imports (%) 16.60 10.09 11.15

Inflation (%) 5.47 3.65 3.45

USD/IDR (average) 14,870 15,115 14,750

USD/IDR (year-end) 15,235 14,855 14,535

BI 7-Day Reverse Repo Rate (%) 5.50 6.00 5.00

Source : Mirae Asset Sekuritas Indonesia Research

28 PT.Mirae Asset Sekuritas Indonenesia

Summary of economic outlook 2023
 UK and Eurozone economy is weakening, affected by tight monetary policy, high inflation, and
energy crisis resulted from Russia-Ukraine conflict.
 There are signs of cooling inflation in US, resulted from aggressive monetary tightening.
 US economy will moderate, resulted from policy rate hikes and slowing domestic demand. We
expect US economy to enter recession in 3Q23.
 The Fed, BoE, and ECB will slow the pace of rises in interest rates due to combination of
weakening economies and easing domestic price pressures.
 Indonesia’s economic recovery is on track throughout 3Q22, people’s mobility and
consumption continue to recover, while external balance remains strong.
 However, we see signs of slowing down in the economy, with slowing mobility after
subsidized fuel price hike. We believe household consumption will rebound in 2Q23.
 We expect BI to continue hiking policy rate to manage soaring inflation as well as soaring
USD. Meanwhile, macroprudential and banking sector policy remain accommodative to
support loan growth.
 We see a softer pace of expansion in 2023 due to the impact of global recession and higher
interest rate.
Important Disclosures & Disclaimers

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