Investment in Indonesia

Indonesia - Investment

Economy charts steady course in Q2 despite choppy external waters

The economy expanded 5.0% in Q2 2019, according to recent data released by Statistics Indonesia. This was down a notch from Q1’s 5.1% reading but matched market expectations.

Domestic demand had a strong showing. Private consumption expanded 5.2% (Q1: +5.0% yoy), likely supported by a solid labor market and mild inflation. Public consumption growth picked up amid election-related spending (Q2: +8.2% yoy; Q1: +5.2% yoy). However, fixed investment was sluggish by recent standards (Q2: +5.0% yoy; Q1: +5.0% yoy), likely due to the government’s restrictions on capital imports holding back infrastructure development.

The external sector continued to contribute to growth in the second quarter, although this was chiefly thanks to a further sharp decline in imports (Q2: -6.7% yoy; Q1: -7.4% yoy). Exports also fell, amid sagging global trade flows and U.S.-China tensions (Q2: -1.8% yoy; Q1: -1.9% yoy).

Looking to H2, our panelists see growth at close to its current level. Wage gains and mild price pressures should aid private consumption, while government spending should also be robust. However, the external environment will remain challenging, hampering exports.

Turning to 2020, analysts at Nomura are upbeat about prospects:

“The improvement we expect in growth next year will be supported by improving reform prospects, particularly on the business climate, given the re-election of President Jokowi to a second and final term with a stronger mandate, as well as the utilization of available fiscal space and steady progress on infrastructure projects.”

FocusEconomics Consensus Forecast panelists see GDP expanding 5.1% in 2019 and 5.2% in 2020.