Indonesia Private Consumption (ann. var. %)

Private Consumption in Indonesia

GDP growth is steady in Q1

The economy grew at a stable pace in the first quarter of 2023, with GDP expanding 5.0% on an annual basis. Q1’s reading came in slightly above market expectations.

Household spending growth was stable at 4.5% year on year in Q1, despite still-elevated inflation. Meanwhile, fixed investment growth slowed to 2.1% in Q1, from the 3.3% expansion recorded in the previous quarter, amid higher interest rates. Lastly, government spending rebounded and grew 4.0% in Q1 (Q4: -4.8% yoy), partly due to a low base of comparison—government spending shrank 6.6% in Q1 2022.

On the external front, growth in exports of goods and services decelerated to 11.7% year on year in the first quarter (Q1: +14.9% yoy) amid a less supportive global economic environment. Meanwhile, growth in imports of goods and services slowed to 2.8% in Q1 (Q4: +6.3% yoy), likely due to cooling investment activity.

In quarter-on-quarter terms, GDP contracted 0.9% in Q1, a somewhat less pronounced decrease than Q4’s 1.0% sequential decline.

Commenting on the outlook, Nicholas Mapa, senior economist at ING, noted:

“Indonesia’s growth prospects look relatively upbeat as inflation edges closer to the central bank’s 2-4% target. Easing price pressures could bolster household spending further while also allowing Bank Indonesia (BI) to eventually cut policy rates by the third quarter. A pivot for BI to rate cuts could reinvigorate bank lending and capital formation, which would give growth momentum another reason to accelerate.”