Indonesia: Economic growth picks up slightly in the second quarter
August 6, 2018
The economy sped up in the second quarter, with GDP expanding 5.3% over the same quarter of 2017, up from Q1’s 5.1% rise. The print slightly overshot market expectations and marked the fastest growth since Q3 2013.
Domestically, growth was broad-based. Private consumption rose a solid 5.1% (Q1: +4.9% year-on-year), congruent with strong retail sales and consumer confidence readings throughout the quarter. Low inflation and a healthy labor market likely also aided the performance; the most recent data from the statistical institute corresponding to February shows robust jobs growth and a year-on-year fall in the unemployment rate. Fixed investment increased 5.9% (Q1: +7.9% yoy), supported by surging machinery and equipment investment. Meanwhile, government consumption rose 5.3% (Q1: +2.7% yoy), possibly boosted in part by extra spending ahead of regional elections held on 27 June.
Looking at the external sector, exports expanded 7.7% in Q2 (Q1: +6.1% yoy), supported by strong global growth momentum. However, imports rose 15.2% (Q1: +12.7% yoy), likely on higher oil prices and greater imports for investment purposes, with the external sector consequently subtracting 1.7 percentage points from growth (Q1: -1.6 percentage points).
Looking ahead, buoyant government infrastructure spending and a looser fiscal stance in the buildup to general elections next year should support the economy. In addition, private investment should be boosted by higher commodity prices and government reform efforts. However, the external sector will likely continue to drag on growth in the near term despite government efforts to limit imports, while the Central Bank’s tighter monetary stance will raise borrowing costs and could dampen the recent pickup in private consumption growth.
Author: Oliver Reynolds, Economist