Executive Summary

Regional Macro Economic Development

During the fourth quarter of 2017, Central Java’s economic growth has recorded acceleration by growing 5.40% (yoy) which was relatively higher than the previous quarter at 5.17% (yoy) or during the same period last year at 5.33% (yoy). This result was actually higher than the national economic growth which only stood at 5.19% (yoy), 5.06% (yoy) in the previous quarter and 5.33% (yoy) in the previous year. However, it was still lower than Java’s overall economic growth in which despite the decelerateion, was still managed to reach 5.62 % (yoy) from the previously 5.68 % (yoy).

From the Expense side, the growth was originated from the household consumption and household non-profit institution consumption. Meanwhile, investment, foreign export, and government consumption remained growing despite the deceleration during the previous quarter. On the other side, from the business field, the positive progress in farming, manufacturing industry and construction provided the extra boost for the economic growth while trade noted a deceleration.

Although Central Java’s economic growth during the fourth quarter of 2017 progressed better than the previous one, but, overall, compared to the achievement in 2016, Central Java had a rather stable progress in 2017. Having a 5,27% (yoy) growth, Central Java has equaled the growth in 2016. The improvement in foreign export, investment, household consumption, and government consumption became the main supporting factors of the growth in 2017. Unfortunately, the sharp surge of foreign import has blocked the economic growth in this year. Meanwhile, from the business field perspective, Central Java’s economic growth was still mainly supported by the increase on manufacturing industry, trade, and construction while agriculture recorded a deceleration due to unsupporting weather condition.

Government Finance

The percentage of Central Java’s regional income and expense realization during the fourth quarter of 2017 increased. Central Java’s income reached 100,30% during the fourth quarter of 2017 following the 2017 adjustment. This showed a positive progress compared to the same period in the previous year which reached as much as 93,52%. Meanwhile, the regional expense during the fourth quarter of 2017 was at 95,61% of the regional budget which was better than the previous year at 91,55%

 

The increase in income mainly came from the regional tax, and general and special budget allocation which rose from the previous year. On the other hand, the increase in expense came from the increase of indirect expense component, especially employees’ expense and profit sharing expense. This condition was in line with the needs in employees’ salary, especially teachers who are currently under the responsibility of Central Java’s Provincial Government.

 

Regional Inflation Development

In the fourth quarter of 2017, Central Java’s inflation was higher than the previous quarter. It was noted at 3,71% (yoy) which was an increase from the previous 3,58% (yoy). Quarterly speaking, Central Java has undergone 0,95% (qtq) inflation which contradicts the third quarter of 2017 0,18% (qtq) deflation. Based on the inflation disaggregation, the third quarter of 2017 inflation growth occurred due to the fact that volatile food experienced a -0,15% (yoy) inflation which was higher than the previous -1.23% (yoy). The inflation rise in volatile food was accelerated by the rise of foodstuffs led by the domestic lack of production stock.

 

Stability of Regional Finance, Financial Access Development, and MSME

As Central Java’s economic performance got stronger, Central Java’s banking indicators also were also improved during the fourth quarter of 2017 after a decline in the previous quarter. The main banking indicators - expansion and credit distribution quality – have displayed a positive progress compared to the previous quarter. Meanwhile, there was a deceleration on the asset growth and the third party fund raising which was, in fact, inline with the drop for the national and overal Java region. Banks’ role in providing the supporting fund for SME in Central Java during the third quarter showed a significant increase compared to the previous. The growth of taylor-made loans for SME in Central Java during the period also noted an increase which also supported the growth of national loans for SME.

 

Managing Payment System and Cash

Cash and non-cash payment system were safe, well-managed and efficient, capable of supporting Central Java’s transaction during the fourth quarter of 2017. Retail financial transaction managed via SKNBI was improved compared to the previous quarter. The cashflow from BI to banks noted a net outflow position due to the increasing needs during christmas and school’s new academic year. Transaction using foreign currency at KUPVA BB also noted a rise compared to the preceeding period. In addition, the implementation of electronic cash has been widely spread across the nation, especially for tol payment and regional government.

 

Employment and Welfare

Central Java’s overall welfare condition was relatively improved during the quarter which was reflected from the improved employment condition, farmer exchange value, and the drop in the poverty rate. Central Java’s employment condition has certainly been improved which led to the fall in the unemployment rate and the rise in employees’ participation rate with the improvement in the employees’ quality.

 

Farmer exchange value’s high surplus at 103,48 showed a slight climb from the previous 102,56 or from the previous annum at 99,35. The improvement was the result of the large gap between the increase in farmers’ income and their expense. Furthermore, the growth was in accordance with the growth of agriculture field compared to the prior quarter.

 

On the other hand, the poverty rate declined in September 2017 compared to the same quarter in the previous year. Central Java’s poverty rate displayed a rather significat drop from 4.494 thousand people in 2016 to 4.197 thousand people in he following year. The number represented 12,23% from the total population in Central Java which underlined the decrease from 13,19% in the same quarter last year.

 

Prospect of Regional Economy

It is projected that until the second quarter of 2018 Central Java’s economic development will accelerate better than the previous quarters ranging around 5,3 – 5,7% (yoy). This growth will come to exist due to seasonal patterns during Ramadhan and Idul Fitri. In addition, the simultaneous regional election in june 2018 will also provide the necessary boost to the regional economic atmosphere. From the expense side, household consumption, household non-profit

Service institution and foreign export will still become the key factor in the economic development during the second quarter of 2018. Meanwhile, from business field side, it is predicted that manufacturing industry, and major and retail trade will accelerate while agriculture, forestry and fishery will decelerate.

 

Overall, Central Java’s economic growth in 2018 is expected to be better than 2017 (5,27%) by ranging from 5,2% to 5,6% (yoy). The domestic economic condition is expected to be more supporting in order to boost household’s consumption and purchasing ability. Global economic improvement, especially Central Java’s trading partner is projected to be better to support the business in the region. Furthermore, the government commitment in simplifying investment and practicing business in Indonesia, also the commitment in completing the infrastructure development are predicted to be the main elements in sustaining the 2018 economic growth. In addition, the simultaneous regional leaders election in the second quarter of 2018 is expected to increase the amount of consumption in other sectors. Citizens’ increasing purchasing ability will lead to the increase in consumption performance.

 

On the other hand, annual inflation in the second quarter of 2018 is also predicted to keep rising along with the increase in consumption during religious holiday and the regional leaders election. It is targeted to remain at 3,5±1%. The key factor that will play a significant role in the rise of inflation is volatile food which is projected to surge sharply during the first quarter of 2018. The growth is also predicted to take place for the other main categories as the people’s purchasing ability gets better and Rupiah gets stronger. America’s monetary policy will strengthen the capital outflux from within the country. Hence, it will increase the exchange value risk which will affect the inflation on the main goods traded.