Indonesia: Economic growth surprisingly soft in Q1
The economy slowed marginally at the outset of 2018, with growth moderating from the fourth quarter. GDP expanded 5.1% over the same quarter of 2017 in Q1, just below Q4’s 5.2% increase. The moderation was below expectations of a 5.2% expansion and marked the worst print since Q2 2017. It came on the back of a contraction in the external sector and weaker government expenditure.
The external sector continued to drag on growth in the first quarter, as the trade deficit widened amid soaring imports and weaker exports. Annual growth in imports accelerated to 12.8% in Q1 (Q4: +11.8% year-on-year), reflecting healthy domestic demand. Meanwhile export growth eased to 6.2% in Q1 from 8.5% in Q4.
On the domestic side, public consumption growth moderated notably to 2.7% annually from 3.8% in Q4 2017. Growth in private consumption was lackluster and broadly unchanged at 4.9% in Q1 (Q4: +5.0 yoy). On a more positive note, fixed investment spending soared in Q1, rising 7.9% annually (Q4: +7.3% yoy), the fastest pace since Q4 2012.
Overall, the economic growth trajectory remains in line with the Central Bank’s forecast of 5.1%–5.5% growth. Private investment should continue to buoy growth, and government spending will likely pick up ahead of the upcoming local elections in June and presidential elections in April 2019. In addition, higher commodity prices and solid global growth should provide additional support. Several downside risks persist, including the depreciation of the rupiah, which is hovering around an over two-year low against the dollar, and weaker-than-expected private consumption.