Indonesian economic growth and inflation likely to decline marginally in next two years

Indonesian inflation or economic growth is unlikely to be impacted by Brexit in 2016. But the economic growth is expected to be marginally lower in 2017 and 2018, said Societe Generale in a research report. Effect on GDP growth via trade channel is likely to be limited; however, investment is expected to decline, hampering the overall economic growth, though marginally.

“We expect GDP growth to fall by 0.1pp in both 2017 and 2018," added Societe Generale.

Given that imports of UK are expected to decline by 0.5 percentage points in 2017 and 0.6 percentage points in 2018, the impact via the trade channel is likely to be minimal. Indonesia ships around 1 percent of its total exports to the UK, whereas imports from the UK account for just 0.6 percent of their total imports. But certain tangible impact on the GDP growth is likely via the investment channel.

Meanwhile, possible subdued global growth scenario, including the EU and the US, might affect commodity prices. For instance, price of copper, which is a key export item for the country, might drop as the US dollar is likely to appreciate. Declined prices of commodity might signify a fall in exports; however, this might also result in declined domestic investment in the mining sector, according to Societe Generale. Moreover, there might be further pressure on government revenues that might additionally limit the government’s investment ability.