Indonesian growth likely to improve slightly to 5.3 pct this year as consumption demand rebounds, says ANZ Research

Indonesia’s economic growth is expected to improve slightly to 5.3 percent in 2018 as consumption demand rebounds, according to a recent report from ANZ Research. The Asian games will also help support the economic recovery. The GDP outcome and the expected trajectory are unlikely to influence current monetary policy.

The country’s Q4 GDP growth picked up to 5.2 percent y/y from 5.1 percent y/y in Q3 2017. Government spending and investment were the main drivers of this improvement. Investment remained firm at 7.3 percent y/y in Q4 2017 after rising by 7.1 percent in Q3.

The increase in investment was the fastest since Q3 2013, presumably reflecting an increase in government infrastructure spending. Despite higher commodity prices, net exports shaved off 0.60 ppt from GDP growth due to a faster pace of imports. Growth in private consumption remained tepid at 5.0 percent y/y in Q4. Consumption has been soft for the last few quarters.

For full-year 2017, GDP growth picked up marginally to 5.1 percent from 5.0 percent in the previous year. Indonesia’s growth dynamics are not expected to change in 2018, i.e. GDP growth is expected to improve modestly to 5.3 percent in 2018.

"At the same time, we expect inflation to remain within Bank Indonesia’s (BI) inflation band of 2.5- 4.5 percent. We will, however, keenly watch for the evolution of energy prices and the accompanying policy, i.e. whether they are allowed to adjust in line with international prices or not," the report commented.

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