Indonesia: Economic growth remains solid in the third quarter
November 5, 2018
The economy expanded 5.2% in the third quarter according to recent data released by Statistics Indonesia, down only marginally from Q2’s 5.3%—which had marked a multi-year high—and matching market expectations.
Domestic demand drove growth in the quarter, with private consumption increasing 5.0% (Q2: +5.1% year-on-year), likely supported by a healthy labor market and subdued inflation boosting consumers’ purchasing power. Government consumption expanded 6.3% (Q2: +5.2% yoy), propped up by spending on the Asian Games in August and September, while fixed investment grew a robust 7.0% (Q2: +6.0% yoy).
The external sector remained a weak spot. Exports of goods and services expanded 7.5% in Q3 (Q2: +7.6% yoy), supported by strong global growth momentum. However, imports rose a faster 14.1% (Q2: +15.3% yoy), likely on higher oil prices. The external sector consequently continued to subtract from growth.
Looking ahead, private consumption should continue to drive the economy, aided by government efforts to contain inflation, and a lower unemployment rate. Moreover, government consumption could see a boost ahead of elections scheduled for April next year. However, the external sector will likely stay soft despite government efforts to limit imports, as rising global trade tensions will drag on export growth. Moreover, the Central Bank’s tighter monetary stance will raise borrowing costs and could dampen fixed investment growth.
Author: Oliver Reynolds, Economist