Executive Summary

Regional Macro Economic Development Central Java’s economic development noted a deceleration reaching 5.14% (yoy) during the first quarter of 2019. Expense wise, the deceleration was mainly caused by the drop in international exports due to lower international demand. Furthermore, the deceleration in inter-regional exports also induced the deceleration in the province’s overall economic performance in the quarter. On the other hand, domestic demand grew stronger which was reflected from the growth in household consumption, non-profit household consumption and government consumption. In addition, investment also indicated a climb from the previous quarter. Meanwhile, from business sector, Central Java’s economic deceleration was a result of waning manufacturing; agriculture, forestry and fishery; and Wholesale and Retail Trade, Repair of Car and Motorcycle sectors. Fortunately, improving performance in accomodation, food and beverage services; information and communication; and construction have managed to minimize the impact. Government Finance Central Java’s increasing adjusted regional income during the first quarter of 2019 was supported by the regional income like regional tax. On the other side, the increase in regional expense came from the rise of indirect expense such as employment and grant based on the historical pattern. Accordingly, Central Java’s budget allocation in 2019 in various main function was in line with the province’s main priority such as poverty alleviation, and access to education. In the upcoming future, Central Java’s fiscal performance can be optimized through tax optimization, expense synchronization between central and regional government, spending review, improvement in absorption pattern and allocation in strategic sectors. Regional Inflation Development Central Java’s annual inflation in the first quarter of 2019 was annualy lower than the previous quarter. It is believed that the gentle slope was a result of the milder annual inflation pressure in food, transportation, communication and financial service. It is expected that annual inflation in volatile food will increase as supply in food and horticulture commodity will fall. Also, the rise of consumption in the society following the long long holiday will occur in the second quarter of 2019. However, it is predicted that Central Java’s annual inflation will remain below the nation’s annual inflation at 3,5±1%.   Stability of Regional Finance, Financial Access Development, and MSME Despite the relatively decelerating economic performance during the quarter, Central Java’s financial system remained stable supported by credit distribution which were mainly applied for multi-purpose financing, mortgage and automotive with NPL kept far below the limit. Meanwhile, the province’s banking atmosphere recorded a rise in credit and third parties fund although it was reported below the Central Bank’s target. It is forecasted that banks remain optimistic in improving their performance with the support of the government, technology and domestic economic certainty. Credit distribution for SMEs in Central Java remained consistently the highest in national level by exceeding 40%. At the beginning of December 2018, Central Java was announced as the nation’s pilot project for special credit to support local entrepreneur, especially farming. Payment System and Cash Management The cash and non-cash payment system indicator development in Central Java during the first quarter of 2019 confirmed decelerating economic performance quarterly. Transaction via Bank of Indonesia National Clearing System indicated a contraction as much as 13.90% (qtq) from the previous period. This condition reflected the annual transaction value which also experienced a 13.54% (yoy) contraction. Employment and Welfare Central Java’s overall welfare condition during the first quarter of 2019 was relatively better which was reflected from the decreasing poverty level, increasing workforce availability and improving Human Development Index despite the declining Farmers’ Exchange Value. The number of productive age citizens in February 2019 indicating a surge compared to the same period from the previous year contradicted the slight unfortunate rise in the number of unemployment. Prospect of Regional Economy Central Java’s economic growth in 2019 is projected to improve compared to the previous year. From the expense side, acceleration is predicted to be the result of increasing household consumption, non-profit household consumption, and government consumption. Meanwhile, export is predicted to grow relatively slow due to the decelerating volume of global trade. Also, investment is projected to decelerate since several government’s strategic projects would be completed by the end of 2018. On the other hand, from business sector, Central Java’s top three business sectors (manufacturing industry, agriculture, and trade) are projected to accelerate. Central Java’s annual inflation in 2019 is forecasted to increase compared to the previous year due to several external factors. This will take place mainly in volatile food, transportation, communication and financial services. These external factors consist of uncertain economic and geopolitics condition in global level which risking Rupiah’s exchange rate and increasing global oil price. Afterwards, the government fiscal policy plan in energy will add the inflation pressure to transportation, communication and financial services. The Bank of Indonesia along with the government will always work side by side to recommend the finest fiscal policy supporting national economic stability. Source : Central Java Provincial Economic Report, Bank of Indonesia Representative Office in Central Java