Indonesia Domestic Demand (ann. var. %)

GDP growth slows but remains robust in Q4

The economy grew at a softer pace in the fourth quarter of 2022, with GDP expanding 5.0% on an annual basis (Q3: +5.7% year on year). Q4’s reading came in slightly above market expectations, with softening domestic demand behind the deceleration.

Household spending growth ebbed to 4.5% year on year in Q4 from a 5.4% expansion in Q3, as elevated inflation ate into consumers’ pockets. Moreover, fixed investment growth slowed to 3.3% in Q4, from the 5.0% expansion recorded in the previous quarter, amid higher interest rates. Additionally, government spending contracted at a sharper pace of 4.8% in Q4 (Q3: -2.6% yoy) as the government continued to tighten the purse strings due to the return to the 3.0% fiscal deficit cap this year.

On the external front, growth in exports of goods and services decelerated to 14.9% year on year in the fourth quarter (Q3: +19.4% yoy) amid a less supportive global economic environment. Meanwhile, growth in imports of goods and services slowed to 6.3% in Q4 (Q3: +25.4% yoy) due to cooling domestic demand.

In quarter-on-quarter terms, GDP expanded 0.4% in Q4, down from Q3’s 1.8% qoq expansion.

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

“We can expect exports and the manufacturing sector to face headwinds in 2023, with the economy needing to rely more heavily on household consumption for growth. Household spending proved resilient in 2022, but stubbornly high inflation (January inflation at 5.3% yoy) could weigh on consumption—at least in the first half of 2023.”

Meanwhile, Enrico Tanuwidjaja, economist at UOB, commented:

“Indonesia’s growth momentum is likely to slow amidst expectations and combinations of moderating commodity revenue as global prices eased (some markedly) and the inflationary impact from higher fuel and food prices that may weigh down on two significant growth drivers last year: net exports and household consumption. We forecast 2023 GDP growth to come in at around 5%, still within the official range of 4.5-5.3%.”