CEIC Data Talk

Indonesia’s Business Tendency Index stood at 104.72 points during the fourth quarter of 2013 – the index ranges from 0 to 200, with a score above 100 representing improving business conditions. Obtained from the Survey of Business Tendencies produced by the Central Bureau of Statistics, these readings are less optimistic compared to the previous quarter (when the index stood at 106.12 points). However, while acknowledging that it points to less optimism, the index continues to reflect improving business prospects in the Indonesian economy, given the index value still exceeds 100.

The reduced optimism may be somewhat attributable to seasonal declines observed during the first and fourth quarters of the fiscal year (which coincides with the calendar year); the index shows amelioration from the 102.34 points recorded during first quarter of 2013. Improvements in overall business tendencies were observed across almost all sectors on this basis, with the exception of the agricultural sector, languishing at 95.54 points during the period, which is consistent with historically weak agricultural performance during the fourth quarter. At the other end of the spectrum, utilities (electricity, gas and water), and financial and business services, registered the strongest business tendency results.

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The survey’s participants, however, anticipate continuing moderation in first quarter of 2014 to 103.93 points in line with seasonal patterns, according to a separate index of expectations. In terms of sectoral contributions to the index, however, the mining and quarrying sectors are expected to underperform, relative to the previous quarter with an expected business tendency index of 95.40 points despite the strong performance during the fourth quarter of 2013 (measuring 106.00 points).The survey points towards weaker input material orders as the contributing factor towards the poor business tendency outlook in this sector. The weaker performance is also consistent with Bank Indonesia’s Business Survey, which shows a sharp decline in capacity utilization for mining and quarrying to 71.43% as of December 2013 compared to 79.25% during the previous quarter and 75.15% during the same quarter of the previous year.

The conclusions of the Central Bureau of Statistics’ Business Tendency Index are largely consistent with Bank Indonesia’s Business Survey, which likewise shows a similar decline in business activity growth to a weighted net balance of 12.61% during the fourth quarter compared to 13.35% in the previous quarter. Weighted net balances used in Bank Indonesia’s business survey are computed as the difference between positive and negative responses. The weighted net balances concerning expected business activities growth for the first quarter of 2014 similarly declined to 18.04%, although like the Business Tendency Survey, the outlook remains positive overall.

Optimism, albeit waning somewhat, surrounding Indonesia’s business prospects is welcome news amid the constellation of negative factors in January 2014, including higher inflation (at 8.22% year on year) and a weakening Rupiah (trading at IDR12,226/USD), raising import prices. Moreover, foreign direct investment inflows declined by 27.32% year-on-year during the fourth quarter of 2013. Pockets of optimism nevertheless suggest that Indonesia remains relevant as a prospective investment destination despite these uncertainties.

Contributed by Yudha Prawira, CEIC Analyst

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