Indonesian growth likely to slow to 4.9 pct in 2020 as domestic momentum loses steam, says Oxford Economics

Indonesian economic growth is expected to slow to 4.9 percent in 2020 as domestic momentum loses steam and exports recover at a slow pace, according to the latest research report from Oxford Economics.

Real GDP growth remained stable at 5 percent y/y in the third quarter as continued positive contribution from net exports offset weaker domestic demand. Consumption growth slowed as the pre-election spending boost wore off and investment growth edged down further.

Indonesia continued to grow at a resilient pace in Q3, supported by better-than-expected contribution from net trade. Exports were flat on the year, while imports contracted 8.6%. Domestic demand components, however, painted a more sombre picture.

Private consumption growth slowed to 5.1 percent, after averaging 5.3 percent in H1 2019 on pre-election boost. The slowdown in government spending was more marked – 1 percent vs. 8 percent prior. Fixed investment growth also decelerated to 4.2 percent from 5 percent in the previous quarter.

Looking ahead, growth is expected to slow to 4.9 percent in 2020 from 5 percent this year. High frequency data suggest that domestic demand remains weak with the PMI falling below the neutral line of 50 for the fourth consecutive month in October, the report added.

Moreover, we forecast net exports to be a drag on growth next year as exports recover at a slow pace against the backdrop of sluggish global growth and weak Chinese domestic demand.

"We think the BI has room to cut another 25bp in Q4. A stable rupiah and manageable inflation back its accommodative stance. Delayed monetary transmission also supports the case for 'front-loading' cuts in an uncertain external environment," Oxford Economics further commented in the report.