6 Nov 2017

Data Insight | Indonesia

A modest growth pick-up in Q3

Economist
 Real GDP grew 5.1% in Q3, in line with our view, due to strong fixed investment
and external demand. Government consumption also strengthened, amid a
Tommy Wu
catch-up of fiscal spending in H2, but private consumption remained sluggish.
Senior Economist
+852 3103 1085  We keep our forecast of 5.1% growth in 2017 unchanged. But acknowledge that
weak private consumption poses a risk to this view.

Real GDP growth picked up a tad to 5.1% y/y in Q3 2017 from 5.0% in the previous
Impact and outlook
quarter. Fixed investment grew 7.1%, likely driven by increased fiscal spending on public
infrastructure projects. Government consumption also reversed the negative growth last
quarter and grew 3.5%. However, private consumption growth failed to gather pace,
remaining steady at 5%. Meanwhile, net exports contributed 0.7 percentage points to
headline growth, driven by strong external demand. Exports grew 17.3% y/y, the fastest
pace since 2011.

Looking ahead, Q4 real GDP growth could still see a modest improvement, on the back of
more robust fiscal spending on services and public infrastructure investment, while the
two interest rate cuts by Bank Indonesia (BI) in August-September will likely filter through
and support the domestic economy into 2018. But we expect milder export growth after
the strong Q3 performance. In all, we maintain our view that GDP will grow 5.1% in 2017
on the whole, but with risks to the forecast tilted to the downside. However, with
inflationary pressures contained, we do not look for any more rate cuts; instead
forecasting a prolonged monetary policy ‘pause’. Though the Indonesia rupiah has come
under pressure against the US Dollar in recent weeks, we expect this to be short-lived as
demand for Indonesian assets remain strong.

Chart Growth was a tad higher in Q3

2017, on the back of fixed
investment and a pick-up in
government consumption,
while net exports continued to
make positive contribution to
growth. However, private
consumption has yet to show
signs of picking up.

Contact: Tommy Wu | tommywu@oxfordeconomics.com