Asia Pacific Economic Research

Indonesia: 2Q15 GDP –weak details despite stable headline

growth
Indonesia’s economy expanded 4.2%q/q saar in 2Q15, leaving headline growth up 4.7%oya in the quarter
(JPMorgan 4.3%, consensus 4.7%).

Although the headline growth came in as expected, the details were weak, with the bulk of the expansion
driven by net exports due to import compression, reflecting weak investment (first and second charts).
Domestic demand remained lackluster, echoing the tone from 1Q15, with fixed investment still stuck in low
gear. Moreover, government spending also remained soft (third chart).

Limited lift expected in 2H15 - Looking ahead, the forecast pencils lackluster demand with the 3Q15 growth
trajectory at 3.5%q/a, saar and a modest lift in 4Q15 to 4.0%q/q, saar on account of the implementation of
fiscal infrastructure spending. This infrastructure spending, as it occurs, should also provide some confidence
for the private sector which could lead to a pickup in private demand.

Revenue shortfall to constrain fiscal room - However, the 1H15 fiscal data lends some room for pause. The
realized fiscal deficit is running wider than the initial budget estimate due mainly to lower revenues, with the
shortfall expected to be IDR200-300 trillion (0.2-0.3% of GDP). Given that the full year fiscal year deficit is
likely to come close to 2.5% of GDP, and just shy of the 3% consolidated deficit cap, the fiscal wiggle room is
limited. Moreover, with the bulk of current expenditure likely to be sticky, the compression in expenditure is
expected to fall on capital expenses which thus could constrain the potential lift from infrastructure investment.

Watching off balance sheet items - Nonetheless, there are workarounds to this constraint. The first would be
to rely on the state investment funds, (PMN, Penyerataan Modal Negara) which is a below the line budget
item. An alternative would be to provide guarantees which would be one way to circumvent the fiscal rules.

Whether the Indonesian authorities resort to such measures will also be some function of the political economy
and its desire to prime growth at the expense of fiscal prudence. One way to track this risk would be increase
in net debt issuance relative to the fiscal deficit.

Indonesia 2Q15 real GDP

%oya %q/q, saar
4Q14 1Q15 2Q15 4Q14 1Q15 2Q15
GDP 5.0 4.7 4.7 4.8 4.3 4.2
By Expenditure
Consumption 4.5 4.5 4.4 5.6 1.5 3.5
Private Cons. 5.0 5.0 5.0 5.0 4.4 4.0
Govt. Cons. 2.8 2.7 2.3 9.8 -15.2 0.6
Fixed asset inv. 4.3 4.3 3.6 2.9 7.9 -0.8
Exports -4.5 -0.9 -0.1 -7.8 5.7 -4.6
Imports 3.2 -2.3 -6.8 4.3 -2.7 -24.2
By Industry
Goods 4.2 3.4 3.4 4.3 -0.9 5.3
Agriculture 2.8 4.0 6.6 2.5 10.6 13.4
Mining 2.2 -1.2 -5.9 3.6 -17.9 -10.5
Manufacturing 4.2 4.0 4.4 3.5 -0.3 8.3
Construction 7.7 6.0 5.4 9.3 -0.1 2.9
Services 5.8 5.9 5.1 5.3 6.9 1.1
Source: BPS

This document is being provided for the exclusive use of nanik.k.bhojwani@jpmorgan.com & clients of J.P. Morgan.
 Indonesia: composition of growth
%pt. contribution to headline GDP oya growth
10 Domestic demand
8
6
4
2
0
-2 Net exports
-4
06 07 08 09 10 11 12 13 14 15 16
Indonesia: fixed investment ex construction and imports
%oya, real terms
40 Fixed investment ex. con
30
20
10
0
-10 Real imports
-20
-30
06 08 10 12 14 16
Indonesia: contributions to growth
%-pt. contribution to oya headline growth
4
Private consumption
3

2
Fixed investment
1

0
Govt. consumption
-1
06 08 10 12 14 16

Source for all charts: BPS and J.P. Morgan

Sin Beng Ong

(65) 6882-1623
sinbeng.ong@jpmorgan.com
JPMorgan Chase Bank, N.A., Singapore Branch

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