Indonesian economic growth slows in Q1 2016, full year GDP growth likely to accelerate to 5.4 pct

In the first quarter, Indonesia’s economy grew 4.9%y/y, as compared with Q4 2015’s 5% growth and lower than consensus expectations of 5.1% growth. Private consumption, which accounts for 55% of the total GDP, was the key driver of the economic growth.

It grew 5% and added 2.8 percentage points to the first quarter growth. Private investment, which accounts for 32% of GDP, also helped drive economic growth. It expanded 5.6% and added 1.8 percentage points to the economic growth.

Meanwhile, growth in investment slowed in Q1 from almost 7% growth seen in Q4 2015. However, it is likely to recover in the second half of 2016 and be an important factor in boosting growth after the stimulus measures introduced by the government start taking effect, according to Commerzbank.

Meanwhile, government spending slowed in Q1 to 2.9% from Q4’s 7.3%. This mainly dampened the economic growth. The government spending moderated in spite of measures to speed up the disbursement of funds.

The Indonesian economic growth is expected to accelerate to 5.4% in 2016 from 2015’s 4.8%, suggesting growth of about 5.6% for the remainder of 2016, noted Commerzbank. The outlook for the 2016 growth is based on two main reasons.

Firstly, investment growth will be strong as government measures kick-in. And secondly, the central bank cut rates to 6.75% in Q1 2016 due to the favorable deceleration in inflation to 4.3%, said Commerzbank. Inflation is likely to be within the central bank’s target range of 3%-5% in 2016, added Commerzbank.