Indonesia: Growth eases mildly, showing resilience – Standard Chartered

Aldian Taloputra, senior economist at Standard Chartered, notes that Indonesia’s GDP growth moderated slightly to 5.0% y/y in Q3 (from 5.1% in Q2), in line with consensus.

Key Quotes

“Consumption and investment led the slowdown. Household consumption growth eased to 5.0% y/y, from 5.2% in Q2, as the impact of election-related spending faded, while investment unexpectedly slowed despite a stabilisation in leading indicators.”

“Some market participants have questioned the relatively stable growth number, which does not seem to correspond with weakening domestic demand and subdued commodity prices. We think the resilience may be partly due to progress on structural reforms.”

“Indonesia’s economy is becoming less sensitive to commodity prices as it moves towards export-oriented manufacturing and services. In addition, measures to curb imports, such as increasing the biodiesel blend, have addressed the structural external imbalance.”

“We expect growth to remain steady in the next few quarters, keeping 2019 growth at 5.0%, before a gradual pick-up to 5.1% next year. Continuing reforms – such as infrastructure, labour and tax reforms – and accommodative monetary policy should support growth, offsetting the impact of rising inflation on household purchasing power and subdued external demand.”

“Slower Q3 GDP growth (particularly investment), combined with a stronger Indonesian rupiah (IDR) and an improving current account deficit, should keep monetary policy accommodative. We expect further policy loosening by Bank Indonesia (BI) by the end of this year, before it turns more neutral next year.”