Indonesia Economic Outlook
The economy lost steam in the fourth quarter of last year, with year-on-year growth decelerating from Q3. Private consumption growth slowed, restrained by sustained high inflation, as did fixed investment growth amid higher interest rates. Moreover, the expansion in exports softened amid a less supportive global economic environment. Meanwhile, public spending decreased at a sharper pace as the government continued to tighten the purse strings following the recent reinstatement of the 3.0% fiscal deficit cap. A high base of comparison should translate into a further deceleration in year-on-year GDP growth in the current quarter. That said, available data points to strengthening underlying conditions: In January, the manufacturing PMI moved further into expansionary terrain, and inflation eased. However, tighter financing conditions are likely putting a lid on investment activity.
Indonesia Inflation
Inflation came in at 5.3% in January, down from December’s 5.5%. January’s result was the lowest reading since August 2022 and was mainly driven by softer price pressures for food and transport. Inflation should decline gradually this year, but it will remain elevated owing to pass-through effects. China’s economic reopening and volatile energy prices pose upside risks.