Indonesia: Q3 GDP growth likely eased further – Standard Chartered

Aldian Taloputra, senior economist at Standard Chartered, expects Indonesia’s GDP growth to have eased further to 5.0% y/y in Q3 from 5.1% in Q2 on slowing consumption and weak export growth.

Key Quotes

“The fading impact of election and holiday spending and slower social spending may have led to weaker household consumption (5.1% versus 5.2% in Q2). Government consumption likely slowed to 3.0% y/y from 8% in Q2 during the government’s transition. Central government consumption – comprising personnel, material, and social spending net of general agency revenue – may have contracted 0.8% y/y in Q3 (lowest since Q2-2017). Exports likely contracted 0.1% y/y in Q3, easing from -1.8% in Q2, supported by automotive, steel, and jewellery exports.”

“Meanwhile, investment may have increased 6.3% y/y, faster than 5.0% in Q2, led by building investment and a pick-up in government infrastructure investment. Diminishing political risk post-election has probably supported investor confidence. FDI rose 5.3% y/y in Q3, versus a decline of 2.1% in Q2, led by the transport, communication, storage and utilities sectors.”

“FDI from China increased by more than double on a y/y basis to USD 1bn in Q3, and is expected to increase further due to escalating US-China trade tensions. China has surpassed Japan to become the second largest investor YTD. Furthermore, the corporate sector has actively raised funding from the capital market (i.e. bond issuance and IPOs) to take advantage of faster monetary policy transmission.”

“We expect Bank Indonesia (BI) to respond to weaker-than-expected growth with accommodative monetary policy (BI forecasts growth of around 5.1% in Q3). We maintain our call for a 25bps cut in December or a lowering of the reserve requirement ratio (RRR) before the end of this year.”