In fact, the quarterly GDP growth figure may slip below five percent (y/y) for the first time since 2009 (in that year Indonesia recorded <5 percent y/y GDP growth in all four quarters) due to weak consumption amid the country’s still relatively high interest environment (BI rate at 7.50 percent), while investment growth remains sluggish. Furthermore, most of the government’s ambitious infrastructure projects (which will have a multiplier effect on the Indonesian economy) are still to see groundbreaking. Lastly, Indonesia’s export performance will not improve sharply in 2015 as global demand has not picked up. Indonesian exports declined 11.7 percent (y/y) to USD $39.1 billion in the first quarter of 2015, mainly caused by lower commodity prices.

Continued slowing economic growth would also put more pressure on the position of President Joko Widodo, who targets a growth rate of 5.7 percent (y/y) for full-year 2015. Over the past couple of months more and more criticism had been directed at Widodo as he has not (yet) lived up to (the high) expectations of the people.

Several key data (that provide useful information about the state of domestic consumption and investment) - such as car sales, motorcycle sales and cement sales - have been weak in the first quarter of 2015, and - in fact - are weaker than in the same quarter a year earlier. As such, economic growth will have difficulty to accelerate. Moreover, the fuel price hike in November 2014 and subsequent monetary tightening had squeezed domestic demand at the start of the year, even though these measure were undone by removing fuel subsidies in January 2015 (resulting in lower fuel prices due to low global petroleum prices) and a 0.25 percent interest rate cut by Bank Indonesia in February 2015.

The key to accelerated economic growth of Indonesia in 2015 may lie with Bank Indonesia as the government’s under-performance of fiscal policy causes disappointing infrastructure development. Further interest rate cuts are expected to have a positive impact on economic growth. However, it will also put more depreciating pressure on the rupiah ahead of looming higher interest rates in the USA.