Indonesia: Growth dips slightly in Q1 but remains solid
May 6, 2019
The economy expanded 5.1% in Q1 2019, according to recent data released by Statistics Indonesia. This was down a notch from Q4’s 5.2% reading and slightly undershot market expectations, although growth was likely still somewhat above the regional average.
Domestic demand was healthy in the first quarter. Private consumption expanded 5.0% (Q4: +5.1% yoy), likely supported by low unemployment, mild inflation and government support to lower-income voters in the build-up to the April general elections. Public consumption growth was also brisk (Q1: +5.2% yoy; Q4: +4.6% yoy), underpinned by pre-election spending. However, the expansion in fixed investment was the slowest since Q2 2017 (Q1: +5.0% yoy; Q4: 6.0% yoy), potentially dampened by political uncertainty in the run-up to the polls.
Moreover, the external sector continued to strengthen in the first quarter. This was largely thanks to a sharp decline in imports (Q1: -7.8% yoy; Q4: +7.1% yoy), reflective of government measures to tame the current account deficit. However, exports also declined amid tepid external demand (Q1: -2.1% yoy; Q4: +4.3% yoy). As a result, the net contribution from the external sector swung from a 0.6 percentage-point subtraction to a 1.3 percentage-point contribution.
Looking ahead, our panelists see growth continuing to track marginally above 5%. Private consumption should be supported by the strong labor market and government financial assistance to households, while fixed investment should benefit from greater policy certainty following the apparent victory for incumbent Joko Widodo in the presidential elections. However, ebbing global growth could continue to hurt exports.
Analysts at Nomura are fairly bullish on prospects for this year, thanks to “improving reform prospects, particularly on the business climate; targeted fiscal incentives to develop the manufacturing base; and more implementation of infrastructure, which should boost productivity and reduce business and logistics costs”.
Author: Oliver Reynolds, Economist