Indonesia: Growth disappoints in Q4 2019, leaving door open to further monetary easing
February 5, 2020
The economy expanded 5.0% in the fourth quarter according to recent data released by Statistics Indonesia, matching the third quarter’s expansion. Over 2019 as a whole, growth also clocked 5.0%, which was below the government’s 5.3% target.
The domestic economy lost steam in the quarter. Government consumption growth ebbed to 0.5% year-on-year from 1.0% in Q3. Moreover, fixed investment rose a mere 4.1% (Q3: +4.2% year-on-year), an over four-year low, likely weighed on by elevated international uncertainty. More positively, private consumption grew 5.0% in Q4, unchanged from Q3.
The external sector continued to support growth, due to another hefty fall in imports amid ongoing government import substitution measures (Q4: -8.0% yoy; Q3: -8.3% yoy). However, exports contracted 0.4% (Q3: +0.1% yoy) on an unfavorable external backdrop.
This year, our panelists see growth ticking up slightly. Stronger infrastructure spending should boost fixed investment, while looser monetary policy should provide further support to domestic activity.
However, the external sector will likely weaken as imports rebound. Moreover, as analysts at Nomura comment: “We see rising downside risks to our forecast due to the coronavirus outbreak. Indonesia's direct exposure is lower than other countries in the region, but a sharper slowdown in China as a result of the outbreak will hurt commodity producers like Indonesia”.
Author: Oliver Reynolds, Economist