After seeing bleak economic growth in the first two quarters of 2017, with a modest growth pace of 5.01 percent (y/y) each, the Indonesian economy is expected to grow 5.13 percent (y/y) in the third quarter, hence hinting at limited acceleration. Accelerating economic growth in Indonesia is expected to emerge on the back of an improving global picture (especially due to an improving economy in China, Indonesia's biggest trading partner) and strengthening government spending.

For example, commodity prices have been experiencing an upward movement in 2017, particularly the coal price. For Indonesia, one of the world's major commodity exporters, rising commodity prices provide ammunition for economic growth. It is no coincidence that the Indonesian economy started to slow down after the big plunge in commodity prices after the end of the 2000s commodities boom (and after another massive commodity price drop starting from 2011). The recent recovery in commodity prices, on the other hand, helped to cause a USD $3.2 billion trade surplus for Indonesia in Q3-2017.

Meanwhile, several other indicators also point at an improving Indonesian economy in the third quarter. For example, sales of cement and motorcycles have grown. Rising cement sales indicate an increase in property and infrastructure development, while rising motorcycle sales imply that consumers' purchasing power and consumer confidence have improved.

Recently, Bank Indonesia officials also said consumption in Indonesia is on the rise. The central bank kept its full-year growth target at the range of 5.0 - 5.4 percent. Moreover, Bank Indonesia has aggressively cut its benchmark interest rate over the past 1.5 years (by a total of 200 basis points) in an attempt to boost credit growth and consumption. The impact of such aggressive monetary easing should be felt in Q3-2017.

The question also is to what extend Indonesia will be affected by another rate hike of the US Federal Reserve (possibly in December 2017) and its plan to reduce the size of its balance sheet. Finance Minister Sri Mulyani said Indonesia has quite a comfortable balance of payments, solid economic fundamentals as well as monetary policy and therefore should be well equipped to deal with external pressures.

Sri Mulyani also praised Fed Chair Janet Yellen's leadership, particularly her ability to communicate looming policy changes to markets in order to prevent major shock reactions on global markets. Previously, the Fed had not provided enough time for countries to make solid preparations. Sri Mulyani hopes that Yellen's successor is someone who also has a very good understanding that US policies not only impact on the US, but also on the whole world.

Last week Jerome Powell was tipped as being US President Donald Trump's choice for the position of Fed chief as Yellen's first term has almost ended. Bank Indonesia Governor Agus Martowardojo, who also praised Yellen's ability to communicate to the markets, said he expects no major policy changes under the new Fed Chair.

Indonesia's Quarterly GDP Growth 2009-2017 (annual % change):

Year Quarter I
Quarter II Quarter III Quarter IV Full-Year
2017     5.01     5.01
2016     4.92     5.19      5.01      4.94      5.0
2015     4.71     4.66      4.74      5.04      4.9
2014     5.14     5.03      4.92      5.01      5.1
2013     6.03     5.81      5.62      5.72      5.6
2012     6.29     6.36      6.17      6.11      6.0
2011     6.45     6.52      6.49      6.50      6.4
2010     5.99     6.29      5.81      6.81      6.2
2009     4.60     4.37      4.31      4.58      4.6

Source: Statistics Indonesia (BPS)