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ECONOMIC AND INDUSTRY OVERVIEW GLOBAL MACRO ECONOMY Overall global economic landscape in 2014 was showing a moderation trend. European economic condition was relatively unstable with Greek and some of other countries’ crises as notable issues. This encouraged Europe Central Bank ECB to apply interest cut and to implement monetary stimulus as an initiative to drive the economics. On the other hand, China as Asian economic booster also indicated an economic growth deceleration despite relatively high growth at 7 level. The decrease in growth rate was due to export weakening as the impact of decreasing global demand, concerning that export has a prominent factor for China’s economic. Thus, the slowdown was still saved by economic growth posted by India and several ASEAN countries that booked positive growth trend. Economic recovery took place in United States over 2014 brought a hope amid decelerating performance of other global economic engines. This economic recovery was a result of series of monetary policies implemented namely stimulus given by Federal Reserve. Economic key indicators have indicated improvement such as through job creation and real sector performance. In 2015, global trading is estimated to grow higher. The growth of global trading volume will be underpinned by economic recovery both in developed and developing countries, including the recovery of United States and most of European countries economics, which were expected to boost export volume to these countries. In ASEAN region, ASEAN Economy Community is expected to encourage inter-state production and trading activities in the region. INDONESIAN MACRO ECONOMY Indonesian economic growth was managed to grow progressively at 5.1 along 2014, underpinned by household consumption and primary commodities export. Prominent household consumption was triggered by increasing number of middle class, supported by Indonesian demography model at productive age as well as increase in income per capita growth. Meanwhile, political activity of General Election Pemilu and Local Election Pemilukada occurred in 2014 also encouraged high domestic consumption. Hence, this economic growth dynamic obligates discipline and consistency in determining policies to maintain stability and sustainability of economic development. Moderate global economic will potentially suppress domestic economic landscape. Non-recovered economy of emerging countries market also has reduced demand on Indonesian export, mainly for primary commodities. The Government and Bank Indonesia has implementing accurate and integrated policies that Indonesian economic was maintained at positive growth level. On November 18, 2014, the Government has decided significantly reduce subsidy post by increasing oil fuel BBM price. The policy is driving the Government to have more stable State Budget with higher allocation for infrastructure development. Having higher capital expenditure allocation for building bigger supporting infrastructure that is expected to provide multiplier effect to our economics. Nearly throughout 2014, BI Rate remained at 7.5 level showing stability of domestic economy. BI Rate booked an increase in November 2014 by 25bps to 7.75 as BI took prudent initiative in responding increasing oil fuel price. Meanwhile, Rupiah against US Dollar exchange rate reached to Rp12,440 or depreciated by 2.1 as closing of December 31, 2014, well beyond depreciation level posted in preceded year at 25.8. The Government is assumed to retain fiscal room flexibility while also increase expenditure allocation for infrastructure sector. Adequate budget spending in infrastructure development will encourage real sector investment which will later expand job opportunity and increasing domestic consumption. Further, various incentives are also needed namely by simplifying licensing process to boost foreign investment inflow to Indonesia to support economic development. The Government is expected to achieve domestic economic growth at approximately 5.4 - 5.8 in 2015. 101 2014 Annual Report PT Telkom Indonesia Tbk Persero