Indonesia economic growth on track

Standard Chartered has highlighted that Indonesia’s economy grew 4.94 percent y/y in Q4-2016. This high rate is actually slower than market estimates but remains in line with Bank Indonesia’s (BI’s) and government predictions. Household consumption was the key driver, contributing more than half of Q4 GDP growth.

Senior Economist, Aldian Taloputra said: “A mild investment recovery and a contraction in government spending slowed the economy in Q4, as we had expected (the government cut the budget by around IDR 180tn in Q3 to improve fiscal policy credibility).

“On a positive note, export growth turned positive for the first time since end-2014, supported by both the commodity and manufacturing sectors. This was in line with the pick-up in the tradable sector, which grew 3.5 percent y/y (Q3: 3.2 percent).”

He also expects that the Indonesian economy will gain better traction this year, based on higher commodity prices, progress on structural reforms and infrastructure development, and supportive global demand.

“Higher commodity prices should increase fiscal space through higher revenue and also support consumer purchasing power, especially in commodity-producing areas,” He said. “We expect government consumption to contribute positively this year, given the better revenue outlook. We maintain our GDP growth forecast at 5.3 percent in 2017.”

Q4 GDP growth was not weak enough to encourage BI to resume policy loosening, according to Taloputra, as growth remained in line with the central bank’s projections. “We also think increasing inflationary pressure and global uncertainty warrant a more cautious monetary policy stance. We continue to expect BI to keep the 7-day reverse repo rate unchanged this year at 4.75 percent,” He concluded.

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