Potential Impact of European Union and US Financial Crisis to the Indonesian Economy: An Input-output Analysis

The debt crisis in the EU and the U.S. has significant potential impact to the economy of Indonesia. U.S. sub-prime mortgage crisis in 2008 has a strong impact on Indonesian economy, where Indonesia's GDP slowed down to below 5% during 2009. Until July 2011, Indonesia's export growth is starting to grow negatively on some sectors when the crises in the EU and the U.S. have started. Although the slowdown does not occur in all sectors, the impact spreads to other sectors as the existence of industrial linkage among sectors. The objective of the study is to look at the potential impact on the sector level on various indicators such as GDP (value added), indirect tax receipts and business income due to the crisis. Input-output analysis will be used in the simulation. Indonesia Input- Output Table of 2005 is applied as the data base. The results show that if exports to the EU drop, the economic growth will decline by -0.45% from the base case, and if the export to the U.S. drop as well, the GDP growth declined by -0.15% from the base case. However, if exports to both European Union and the US decline, GDP growth drops by -0.60% of base case. Meanwhile, the magnitude of reduction in indirect taxes is only Rp 504.6 billion if the crisis in the U.S. alone, and Rp 1.4 trillion if the crisis in the European Union and to Rp 1.9 trillion for the total impact. So in fact the potential loss of indirect taxes the Government due to the crisis in the U.S. and the EU is not too large. Keyword: Input-output analysis, financial crisis, GDP growth