Indonesian economic growth slows down in Q4 2019, likely to remain around 5 pct mark in coming quarters

The Indonesian economic growth came in weak at the end of 2019, with the GDP growth easing further to 4.97 percent in the fourth quarter from 5.02 percent year-on-year in the third quarter, the weakest in three years.

The economic growth has now slowed down for the fourth consecutive quarters to its slowest since the fourth quarter 2016. For the whole of 2019, the economy grew 5.02 percent, a slowdown from 5.17 percent in 2018 and the weakest in four years.

The slowdown in economy is widespread. Private consumption, government spending and investment growth eased. Exports shrank, but a larger fall in imports led to a pick-up in net export growth. Markedly, investment growth, which came in at 4.6 percent, was at its lowest since the second quarter 2015. A rundown in inventories was also a drag on growth.

Novel coronavirus outbreak is expected to have downside risks to the global economy, including Indonesia. The nation’s close ties with China signifies that there might be some spillover effects. The Indonesian government has imposed a travel ban to and fro from China to prevent the spread of the virus. Chinese visitors represent about 13 percent to total tourist arrivals in Indonesia. Assuming a complete stop in Chinese visitors in February and March, the effect on the first quarter growth is expected at 0.1 percentage point.

Reduced Chinese economic activity because of the prolonged closure of businesses and factories will also ease Chinese import demand from its trading partners including Indonesia.

Given the increased uncertainties of growth and well-contained inflation, Bank Indonesia’s easing cycle likely has further to go despite three straight month so policy rate holds, noted ANZ in a research report.

“We expect at least one more 25bps rate cut this year, following 100bps worth of cuts in 2019. Notably, BI Deputy Governor Dody Budi Waluyo recently reiterated that the central bank is leaving the door open to further easing. Overall, we continue to expect Indonesia’s growth to be stuck around the 5 percent mark in the coming quarters”, added ANZ.