Indonesia GDP growth might have just bottomed out

GDP growth came in at 4.7% (YoY) in 3Q15, just slightly below the expectations. This is the third consecutive 4.7% showing for the year. Full-year GDP growth will probably be circa 4.7% as well. There are enough encouraging takeaways.

Slow fiscal spending and lackluster investment growth has been the main drag to overall GDP growth this year. But government consumption jumped 6.6% (YoY) in 3Q15, twice as fast as the expectations. Earlier this week, President Widodo indicated that budget realization has reached 70% by 3Q, which means that full-year disbursement may well be higher than the 80-85% projected. Total government consumption growth is likely to be a decent 5% this year and will boost GDP growth momentum into 2016. 

The pace of capex spending has been exceptionally poor up until August this year. How much of that 70% went into capex spending remains to be seen, as the Sep budget data is yet to be available. But overall investment growth bounced up to 4.6% (YoY) in 3Q15 and it would not have been possible without acceleration in public investment. That cement consumption registered a decent 7% growth in Aug-Sep was a good indication of a pick-up in infrastructure project works. Interesting to also note that construction is the second fastest growing sector among the top-5 in the economy. 

On the outlook of investment growth ahead, a close monitoring of 4Q15 imports data is warranted. The rupiah has recovered some grounds against the US dollar in Oct. If investment growth were to improve further, a stable rupiah would help to prop up imports of capital goods. The risk on this front comes from the external front, given the lingering uncertainties with regards to the US fed rate hike. While the economy is not roaring again all of a sudden, it seems likely that GDP growth might have just bottomed out. Expect a gradual pace of recovery as the economy continues its shift away from commodities.