Indonesia Q1 GDP growth disappoints as private consumption, investment remains broadly unchanged

Indonesia’s first-quarter gross domestic product (GDP) disappointed markets with both private consumption and investment continuing to grow at the same pace as in the previous quarter. On the positive side, exports materially strengthened. Government spending also rose, following two consecutive quarters of contraction.

Q1 growth marginally edged up on an annual basis largely on the back of stronger exports and a resumption in government consumption spending. Government consumption increased 2.7 percent y/y, reversing the contraction seen in the previous two quarters. Export growth of 8 percent y/y was also the fastest in more than three years.

By contrast, private consumption and investment failed to accelerate. Growth of 5 percent y/y and 4.8 percent y/y respectively in these two components, was broadly unchanged from that in Q4 2016. Going forward, government infrastructure spending could become more supportive of overall growth. Bank Indonesia (BI) shares a similar view, expecting growth in Q2 2017 to accelerate on the back of stronger investment and exports.

"Q1 growth numbers and soft core inflation jointly suggest that BI is likely to remain on hold through 2017. Headline inflation is likely to rise but largely to reflect higher electricity and fuel prices. Their pass-through to other components of inflation should be limited by moderate domestic demand conditions," ANZ Research commented in its latest report.