Indonesia's investment growth may remain weak

The September trade data is due today and we are once again eyeing the import number for the month. In particular, it will be interesting to see the number for imports of capital goods. Imports of capital goods have been falling faster than intermediate or consumer goods in recent years. On seasonally adjusted terms, imports of capital goods are currently falling by 12% per year. 

This is a strong indication that investment growth remains weak in the economy. New investment loans are growing by less than 10% currently, as compared to as high as 30% back in 2011-2012. Downside risks to GDP growth remain, as long as there is no improvement in investment growth. 

On efforts to boost investment growth, another stimulus package is to be announced on Thursday. The focus this time will be on employment issue, with the government set to implement a new rule in determining minimum wages across the country. The aim is to provide more certainty for investors, especially in light of some drastic changes to minimum wages in the past 3 years. 

The government's 3 policy announcements since early-September have managed to lift sentiment in the markets, even if the impact tends to be short-lived. For most businesses, however, it is still a wait-and-see approach. After all, this is the lesson from the 2015 budget. 

When the 2015 budget was announced late last year, most businesses were excited of the government's planned doubling of infrastructure spending this year. Up until Aug15, however, the government has only managed to disburse 20% of its capex budget. Delivery is always key and the current government has been rather disappointing so far.