Indonesia: Growth stalls in Q2
August 7, 2017
Indonesia’s growth was steady in the second quarter of 2017, disappointing our analysts’ expectations of a slight acceleration. GDP expanded 5.0% over the same period of the previous year, matching Q1’s print. The result undershot FocusEconomics analysts’ expectations of slightly stronger 5.1% growth. Rising investment offset a notable drop in government spending and a disappointing performance from the external sector. While overall the result is a bit disappointing for the Indonesian economy, the timing of Eid likely skewed the data and the economy’s outlook remains bright.
Government consumption swung from a notable 2.7% expansion in Q1 to a 1.9% contraction in Q2, holding back the economy’s momentum. The contraction was surprising, as improved revenue streams this year were expected to boost government spending. However, household spending was resilient despite higher electricity tariffs dampening purchasing power and came in at a robust 4.9% in Q2, mirroring Q1’s increase. Fixed investment was a bright spot in the data and growth picked up from 4.8% to 5.4%—the best result since Q4 2015.
The external sector’s contribution to growth was steady as slower growth of exports was balanced out by a deceleration in imports. Exports grew a lackluster 3.4% in Q2, down from 8.2% in Q1. While a better external environment is supporting overseas sales, mixed performance for commodities prices during the period and a distortion in trade flows due to the earlier timing of Eid weighed on the result. Import growth also slowed from 5.1% in Q1 to 0.5%.
Despite the underwhelming GDP print, Indonesia’s growth prospects remain bright. FocusEconomics sees growth accelerating in the second half of the year as the government makes headway on their ambitious infrastructure program and the government’s reform agenda should help boost the business environment and private investment as well. Moreover, upbeat consumer confidence and a healthy global backdrop also bode well for the country’s growth.