Visible in the table below is that the 5.06 percent (y/y) GDP growth rate of Indonesia in Q1-2018 is the highest first quarter figure since 2014. Also clear is that in the 2015-2018 period the Q1 GDP figure is continuously rising, albeit at a very modest pace, and growth is actually stalling.

Indonesia's Quarterly GDP Growth 2009-2018 (annual % change):

Year Quarter I
Quarter II Quarter III Quarter IV Full-Year
2018     5.06
2017     5.01     5.01      5.06      5.19      5.1
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)

Problematically, household consumption growth was recorded at 4.95 percent (y/y) in Indonesia in Q1-2018, only slightly higher than the 4.93 percent (y/y) growth rate in the same quarter one year earlier, and remaining below the much-desired 5 percent (y/y) level. Another issue is that Indonesia's export performance weakened from a year ago, while imports have surged markedly. Direct investment, on the other hand, rose markedly from a year ago.

In our view Indonesia's economic growth will continue to accelerate in the foreseeable future, albeit at a very modest pace because household consumption growth (which accounts for about 57 percent of the nation's economic growth) has remained below the 5 percent (y/y) barrier. Our full-year 2018 GDP growth estimate for Indonesia is kept at 5.2 percent (y/y). While the organization of the 2018 Asian Games as well as the IMF/World Bank meeting will give an additional boost to the local economy in the third and fourth quarters, we expect an interest rate hike (by Bank Indonesia) to curtail (already subdued) credit growth in the second half of 2018.

Comparison Annual GDP Growth Rate Indonesia per Component:

Component   Q1
Household Consumption
4.93%  4.95%
LNPRT Consumption Expenditure¹ 8.02%  8.09%
Government Expenditure 2.71%  2.73%
Gross Domestic Fixed Capital Formation 4.81%  7.95%
Export 8.04%  6.17%
- minus import 5.02% 12.75%
Total 5.01%  5.06%

¹ Consumption Expenditures of Non-Profit Institutions Serving Household
Source: Badan Pusat Statistik (BPS)

What Factors Can Support Indonesia's Economic Growth in 2018?

  • Fitch Ratings upgraded Indonesia's sovereign rating to the second-lowest investment grade in December 2017 (BBB/stable). And in March 2018 Japan-based credit ratings provider Rating and Investment Information, Inc (R&I) upgraded Indonesia's sovereign credit rating from BBB- (positive outlook) to BBB (stable outlook). These upgrades attract capital inflows
  • Commodity prices are strengthening, hence boosting Indonesia's export performance
  • The Indonesian government's infrastructure development push attracts direct investment
  • Local elections in mid-2018 will boost the circulation of money in the regions. Meanwhile, the 2018 Asian Games in Jakarta and Palembang as well as the IMF/World Bank meeting on Bali will give additional boosts to the local economy
  • The central government plans to increase spending

What Factors Can Obstruct Indonesia's Economic Growth in 2018?

  • Monetary tightening in the USA and other big economies can trigger capital outflows from emerging markets, including Indonesia
  • Indonesia's household consumption remains bleak
  • Tax revenue realization is likely to miss the target (as usual). This could make the government decide to cut spending
  • There could emerge rising pressures on the Indonesian rupiah due to monetary policy tightening in the USA
  • The USA and China seem on their way to trigger a global trade war
  • Bank Indonesia may need to raise its benchmark interest rate in an effort to reduce pressures on the rupiah exchange rate
  • Indonesian inflation may rise due to rising crude oil and fuel prices

Projections Indonesia's GDP Growth in 2018:

Institution   2018
Bank Indonesia
World Bank    5.3%
International Monetary Fund (IMF)    5.3%
Asian Development Bank (ADB)    5.3%
Indonesia Investments    5.2%

Various sources