Indonesian factories to feel trade slowdown in 2023

Real global GDP growth is projected to increase by 2.3 per cent next year, down 1 percentage point from the previous estimate, with a downside risk for a sharp contraction of 2.8 per cent.

Fadhil Haidar Sulaeman

Fadhil Haidar Sulaeman

The Jakarta Post


A worker operates a crane at the Perawang container port in Siak, Riau, on Aug. 7, 2020.(Antara/FB Anggoro)

October 10, 2022

JAKARTA – The World Trade Organization expects significant headwinds for global trade next year, and Indonesian producers will not go unscathed.

In a press conference on Wednesday, WTO director general Ngozi Okonjo-Iweala said global merchandise trade volume was estimated to grow by just 1 percent in 2023, greatly reduced from the 3.4 percent assumption made in April.

Real global GDP growth is projected to increase by 2.3 percent next year, down 1 percentage point from the previous estimate, with a downside risk for a sharp contraction of 2.8 percent.

“The picture for 2023 has darkened considerably,” the WTO chief said. The institution’s downside scenario is based on risks such as a potential escalation of the war in Ukraine or a food or energy crisis.

Import demand from major economies in Europe will decrease as high energy prices weigh on households and increase production costs for industries, while rising interest rates in the United States will curb spending on housing, vehicles and fixed investment, according to the WTO.

In China, meanwhile, ongoing COVID-19 restrictions are expected to further hurt production volumes that are already impacted by weakening overseas demand.

Nonetheless, the WTO expects real GDP growth in Asia to be 4.2 percent, beating all other regions assessed, while Asian imports and exports are estimated to grow by 2.2 percent and 1.1 percent, respectively.

“Trade restrictions may be a tempting response to economic distress. But these would only deepen inflationary pressures and reduce living standards. Some would likely make us more, rather than less, vulnerable to the crisis we are grappling with,” she continued.

Trade Ministry Policy Agency head Kasan Muhri expects industrial exports of jewelry, timber, copper, home appliances, synthetic fibers and fruits to plunge, continuing a trend of the past 12 months.

“Consumers around the globe will tend to withhold spending and save money, leading to a global drop in demand, especially for nonessential consumer goods,” Kasan told The Jakarta Post on Thursday.

Nonetheless, he expects Indonesia to maintain its trade surplus next year thanks to strong demand for coal, a commodity that has become more competitive against other sources of energy as some developed economies involved in geopolitical conflict eschew Russian oil and gas.

Exports of crude palm oil (CPO), seen as a cheaper alternative to other vegetable oils, would also remain high in 2023, he said, while processed nickel exports would rise as electric vehicles become increasingly mainstream.

Indonesian Chamber of Commerce and Industry (Kadin) international affairs deputy chairperson Shinta Widjaja Kamdani expects overall export volumes to dwindle “by a little bit” amid lower demand from major trade partners, while a prolonged Ukrainian conflict would keep Indonesian commodities attractive.

The first line of impact would be industries exporting nonessential goods, she said, adding that exporters needed to be aware of the risk of an economic crisis in the importing countries and potential defaults on payments. “

Domestic inflation must be lowered [and rupiah] depreciation checked. Domestic businesses need to be supported with various fiscal and nonfiscal stimuli,” Shinta told the Post on Thursday.

The impact of the global crisis, she said, could impact foreign direct investment (FDI) as investors tended to avoid higher risk profiles in developing countries, thus FDI growth was expected to be “very low or moderate”.

Indonesian Employers Association (Apindo) trade chairperson Benny Soetrisno expected the trade balance to remain in surplus, albeit narrowly, because of lower demand for nonfood manufactured goods.

On the bright side, he expected shipments of natural and agricultural resources to grow in the upcoming year.

“Exporters must [scale down] to offset overhead costs, so that they are proportional to sales,” Benny told the Post on Thursday.

Center for Indonesian Policy Studies (CIPS) board of directors member Donna Gultom noted that, while next year’s trade estimates were “somewhat concerning”, exports did not contribute as much to economic output as domestic demand.

Statistics Indonesia data show that exports contributed 24 percent to Indonesia’s GDP in the second quarter of 2022, with household spending accounting for the lion’s share of 51 percent, followed by investment with 27 percent.

“We are quite resilient now, but that does not mean we are not affected if this [global crisis] is extended,” Donna told the Post on Thursday.

The former Trade Ministry negotiator also warned that Indonesian steel and CPO exports faced resistance from Europe.

She said the European Union was specifically imposing trade restrictions on Indonesian goods produced with investment from China.

“Our steel exports to the EU are being put on hold as [the EU] imposes antidumping duties. I told them: ‘Hey, you guys are taking this thing too far; we are a developing country,’ Donna continued.

Center of Economic and Law Studies (CELIOS) Bhima Yudhistira noted that the rupiah’s depreciation against the US dollar increased prices of imported oil, gas and raw materials.

On the other hand, he added, Indonesian industries sourcing much of their raw materials from the domestic market were in much better shape.

“The local cosmetic industry is experiencing a boom because of the decrease in CPO prices, while at the same time, domestic demand for these products is still high,” Bhima told the Post on Thursday.

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