Gradual recovery in Indonesia's investment growth

That investment growth is likely to come in around 3.6%, well below its long-term trend of circa 8%, clearly makes it to be the main drag of overall GDP growth this year. And coupled with a weak external demand, the risk is that consumption growth may continue to moderate going forward. Any sign of a nascent recovery in investment growth from the 3Q15 GDP data next week will be positive for the outlook ahead. 

On this front, the uptick in loan growth in August was encouraging, especially noting that new investment loans rebounded as well. But it is too early to say that loan growth has bottomed out. It will be crucial to monitor data in the coming months. The government dashes to spend its budget before the year ends and the positive spillover impact to the private sector may boost overall investment growth. 

"Our current GDP growth forecasts are at 4.8% and 5.2% respectively for 2015 and 2016", says DBS Group Research.

The key assumption is that the government's budget realization will be more effective in 2016 compared to this year. Overall investment growth may then return to circa 5%. It is a decent growth rate but far from being strong, especially noting the low base effect from this year.