Considering the Indonesian economy expanded by 5.01 percent (y/y) in both Q1-2017 and Q2-2017, followed by 5.06 percent (y/y) in Q3-2017, Bank Indonesia is expected to narrow its target range to 5.0 - 5.2 percent (y/y) for full-year growth as actual GDP growth realization could likely remain below 5.1 percent (y/y) this year.

Perry Warjiyo, Deputy Governor of Bank Indonesia, said he remains optimistic that Q4-2017 growth will improve significantly from the 5.06 percent (y/y) that was recorded in the preceding quarter. However, the institution is still calculating its new target range for full-year 2017 growth as new data are coming in and are being studied.

Despite bleak economic growth so far this year, Warjiyo said several components are actually better than expected. For example, investment (+7.11 percent y/y) and government consumption (+3.46 percent y/y) came in stronger than initially estimated. Export growth at +17.27 percent (y/y) was also good although this figure was primarily supported by rising (commodity) prices, not by rising volumes.

Meanwhile, household consumption remained subdued, sliding to a 4.93 percent (y/y) growth pace in the third quarter (down from 4.95 percent y/y in the preceding quarter). However, Bank Indonesia still needs to study whether this in fact indicates household consumption has weakened further, or, that the nation's producers failed to raise production as they are first selling their stockpiles.

Still, it remains crucial for Indonesia to push household consumption back to a growth rate above 5 percent (y/y) as this component accounts for more than half of Indonesian economic growth. But, based on the latest data, Indonesian consumer confidence weakened at the start of the fourth quarter and therefore there is some concern that the Indonesian people are still not ready to consume. This is also reflected by rising third-party funds at local banks (people seemingly prefer to save their money on bank accounts). Lastly, credit growth only managed to touch a growth rate of 7.86 percent (y/y) per September, significantly below Bank Indonesia's 2017 target (10 percent y/y).

Bank Indonesia also believes that its recent aggressive monetary easing will kick in on the short term and therefore Q4-2017 economic growth of Indonesia should accelerate more significantly. Over the past 1.5 years, Bank Indonesia cut its benchmark interest rate by a total of 200 basis points in an attempt to boost credit growth and consumption.

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      5.06
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)