Indonesia may post slow growth rate in 2015-16

The effect of the sharp slowdown in government spending on Indonesia's growth is clear. The country's growth fell to 4.7% in H1, well below the trend rate of 5%. Although Q2 growth quickened to 1.4% q/q sa in Q2 from 0.8% in Q1, this was overshadowed by a slightly concerning underlying trend of deteriorating exports and imports, especially pronounced for the latter. 

The weaker IDR as well as delays in awarding government tenders (due to the January-April merger of the ministries of public works and housing, which control most public operating expenditure) have contributed to import weakness. Given the delays in restarting public spending, it added only 0.18pp to Q2 growth (Q1: 0.17pp) - less than half its normal contribution. There are now hopes that the impulse from government spending will return to normal by Q3. We believe that it is more realistic to expect this to happen by late Q3 or early Q4. 

"Indonesia's growth is unlikely to rebound strongly in Q3. Domestic consumption was still the key pillar of support in Q2, albeit with a marginally smaller contribution relative to Q1. Although the government spending is flowing once again, it may take time for payments to trickle down into household income. Given the renewed pressure on commodity prices as well as a further weakening in China growth, especially in H2, we revise moderately lower our growth forecasts for 2015 and 2016 by 20bp each, to 4.9% and 5.4%, respectively", argues Barclays.