The recent softening of global economic growth is “strongly welcome,” Indonesia’s investment chief told CNBC Wednesday, warning of financial risks that had been building up in China and beyond.
“I would go as far to say ‘thank God’ for the global economic slowdown,” Thomas Lembong, chairman of the Indonesia Investment Coordinating Board, a service to assist foreign investors in the country, told CNBC.
“Because in my view the previously globally synchronized economic boom was built on some rising financial risks, particularly an out-of-control shadow banking sector in China and a bubble in technology shares and investments,” he said, speaking at the World Economic Forum (WEF) in Davos, Switzerland.
“So, from a policy point of view, I think the correction in technology stocks and the deleveraging campaign in China, which might be causing a slowdown, is strongly welcome. Yes, the (global) economy is slowing down moderately but I think the financial risks that were building before are being addressed,” he said.
Indonesia is the largest economy in Southeast Asia, but it’s seen a change in attitude from dominant economic powerhouse China. Foreign direct investment into Indonesia from emerging markets like China slowed last year, Bank Indonesia data from the second quarter of 2018 showed.
Lembong said China had now become much more “cautious and calculated” in its investment attitude amid an economic slowdown in the country and its more fragile outlook, particularly in light of its ongoing trade tensions with the U.S.
‘Slow and steady’
Indonesia’s economy has typically grown around 5 percent per year in the last five years and analysts polled by Reuters expect a similar growth rate in 2018. Lembong likened Indonesia’s growth story to the parable of the tortoise and the hare with the country representing the tortoise’s slow but steady growth.
“Indonesia is definitely the turtle, slow and steady, but still with GDP (gross domestic product) growth of 5 percent per year means the economy will double every 14 years. And I think that in a world that has a big circus going on with a lot of volatility and fireworks I think Indonesia can be a steady-as-she-goes investment destination,” he said.
Still, as an emerging market, Indonesia is vulnerable to shifting sentiment among international investors. Right now, however, the U.S. tariff war with China could be making Indonesia and its neighbors more attractive.
Experts have also said the conflict between the world’s two largest economies would push companies to speed up plans to move parts of their supply chains from China to countries such as Vietnam, Thailand, and Indonesia.
Earlier on Wednesday, Indonesia’s industry minister told CNBC that the country had benefited from the U.S.’ trade war with China with companies producing textiles and footwear looking to move out of China and into his country.
The Southeast Asian country has also been exporting more steel to the U.S., he added, despite President Donald Trump imposing additional tariffs on steel and aluminum imports in March last year.