Indonesia Investments wishes all Muslims a happy & generous Ramadan
25 May 2018 (closed)
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Indonesia's Statistics Agency (BPS) announced today (06/11) that the nation's gross domestic product (GDP) grew 5.06 percent year-on-year (y/y) in the third quarter of 2017. Like in the preceding two quarters, this latest figure is (slightly) below analysts' estimates. On average, analysts had expected growth in the range of 5.10 - 5.20 percent (y/y) in Q3-2017.
Internally, bleak household consumption, which accounts for slightly over half of Indonesia's GDP, remains a problem, 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.
Although the government wants to reduce the nation's reliance on household consumption (and increase the contribution of investment), this shift will require several years (and commitment from the government). Therefore, for the short and medium-term, without a strong rebound in household consumption Indonesia's economic growth is likely to stagnate around the 5.0 percent (y/y). Since 2014 Indonesia has been stuck at this growth level. Some analysts expect to see the same growth rate for the next couple of years.
It is also remarkable that aggressive monetary easing has not led to a recovery in household consumption. In 2016 and 2017 Indonesia's central bank (Bank Indonesia) cut its key interest rate by a total of 2.0 percentage points in an effort to boost credit growth and consumption. Credit growth only reached a growth rate of 7.86 percent (y/y) per September, significantly below Bank Indonesia's 2017 target (10 percent y/y).
Meanwhile, government spending rebounded by expanding 3.46 percent (y/y) in the third quarter, accelerating after a near 2 percent contraction in the preceding quarter. The government has particularly been boosting spending on infrastructure development as this would cause the multiplier effect and encourage structural economic and social growth across the country. The availability of quality infrastructure would also attract more private investment.
The central government targets a 5.2 percent economic growth pace (y/y) in full-year 2017 (set in the Revised 2017 State Budget). However, it is highly unlikely that economic growth can accelerate significantly in the last quarter of the year.
Indonesia's Quarterly GDP Growth 2009-2017 (annual % change):
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Source: Statistics Indonesia (BPS)