Indonesia: Growth slows slightly in Q3
November 7, 2016
Indonesia’s growth eased tepidly in the third quarter, but remained largely on track. GDP expanded 5.0% over the same period last year, slightly down from Q2’s 5.2% expansion, which had marked the best result since Q4 2013. The result was just a notch down from the FocusEconomics Consensus Forecast for a 5.1% expansion. Despite the easing, firm private consumption data suggest that the economy remains on a steady footing.
The slight slowdown came on the back of a modest deterioration across the economy. The external sector subtracted 0.3 percentage points from growth as exports dropped by a sharp 6.0% (Q2: -2.4% year-on-year). The fall was likely attributable to tepid demand and low commodity prices, which have plagued exports revenues in recent quarters. However, the slight pick-up seen in commodity prices in recent weeks should provide some relief going forward. Meanwhile, imports fell 3.9%, a more pronounced drop compared to Q2’s 2.9%.
In the domestic side of the economy, government consumption swung from a 6.2% expansion in Q2 to a 3.0% contraction—a multi-year low. Spending reduced in the third quarter due to the front-loading of expenditure and after weak tax revenues prompted a revision of the budget. Fixed investment growth decelerated from 5.1% in Q2 to 4.1% in Q3. Credit growth has been modest this year despite a lower interest rate environment. On the bright side, private consumption remained firm, expanding 5.0% (Q2: +5.1% yoy). Low price pressures supported consumers’ purchasing power despite some unfavorable seasonal affects in the quarter. A large statistical discrepancy supported GDP growth in Q3, a result which has puzzled market analysts.
Looking forward, the economy is on track to grow at a slightly faster pace than last year as government stimulus bears fruit and private consumption remains robust. Revenues from the government’s ambitious tax amnesty will be available to use in Q4 and should support increased public spending. Commenting on their outlook for Indonesia’s economy, Euben Paracuelles and Lavanya Venkateswaran, Analysts at Nomura explain:
“We maintain our full-year 2016 GDP growth forecast of 5.2%, although acknowledge downside risks given that our forecast implies Q4 GDP growth accelerating to 5.5% y-o-y. We continue to expect a gradual domestic demand-led recovery given that policy easing has largely played out, while both business-friendly reforms and the government’s focus on boosting infrastructure spending are likely to continue.”