Way better than expected
Statistics Indonesia recorded a 3.72% QoQ (5.44% YoY) of GDP growth in 2Q22. This is way better than consensus at 5.17% YoY. Market senses this as a positive sentiment as the growth emphasizes that Indonesia can sustain the economic acceleration despite of high base (7.07% YoY in 2Q21). In nominal terms, the growth has achieved 9.01% QoQ (17.8% YoY) to Rp4,919 tn (USD330.3 bn), showing the serious inflationary pressure. The biggest source of growth came from export contributing 4.44% of growth where it grew by 18.3% YoY, thanks to the upside from global commodity price hike.
Household consumption as the backbone of GDP
Household still played the most important role as it contributed 51.5% to GDP. It grew at 2.42% QoQ (5.51% YoY) in 2Q22. The growth was on the back of Ramadan momentum and the ease of Covid-19 cases back then. After severely hit by the pandemic, transportation (and storage) sector jumped again by 21.4% YoY despite of the high base at 25.1% YoY in 2Q21. It seemed that people had no doubt anymore to commute/travel during the pandemic. Consumer Confidence Index (CCI) also supported the notion that people was more confident on their consumption as the index grew by 6.59% QoQ (18.1% YoY) to 123.5 level in 2Q22.
The challenge ahead may come from inflation putting household consumption under pressure. It makes people rethink their consumption pattern, as they have to be more frugal regarding the uncertainty ahead. However, thanks to the windfall from commodity price hike, it allowed the government to expand fiscal stimulus. Ministry of Finance (MoF) has disbursed social assistance of Rp188.2 tn in 1H22 or rose by 5.1% YoY where it was Rp179.1 tn in 1H21. Despite of the ease of Covid-19 cases in 2Q22, the government protected the people purchasing power from rising inflation that has breached Bank Indonesia’s (BI) target above 3±1% YoY at the end of 2Q22.
Contraction on government expenditure
The government spending contributed 6.94% of GDP where it plunged by 5.24% YoY in 2Q22 due to the decrease in the realization of personnel expenditures. Even though the contraction of government spending limited the GDP growth, we see this is a good move to avoid a precarious fiscal posture for 2H22. In the previous 2022 state budget, expenditures for energy subsidies were targeted at Rp134 tn (fuel: Rp77.5 tn and electricity: Rp56.5 tn). In addition, the 2021 energy compensation underpayment of Rp108.4 tn is included in the 2022 budget as well. So, the whole amount of energy subsidies and compensation will rise to Rp502.4 tn in the revision of 2022 state budget due to the higher global oil price. Thus, we see it is applaudable if the government save money now to spend more when it is needed the most.
The investment slipped by 3.66% QoQ but grew positively on yearly basis at 3.07% YoY in 2Q22. However, from the investment realization, it was recorded at an all-time high in a decade where it increased by 35.5% YoY to Rp584.6 tn (51% of target at Rp1,200 tn). Total investment realization came from Foreign Direct Investment (53%) and Domestic Direct Investment (47%) with Singapore as the biggest contributor (27.7% of total FDI). With better investment climate and immense effort of President Jokowi in approaching many countries directly, we expect the investment realization can achieve its target this year.
It is true that we are anticipating several threats: potential monkeypox outbreak, prolonged Russia-Ukraine war until the rising protectionism. The soaring inflation also brings the monetary policy normalization on the table, limiting the economy to expand. However, the 2Q22 growth is beyond expectation and this indicates a faster economic recovery ahead. With the auspicious growth, we see the FY 2022 economic growth may be higher than our forecast. Nevertheless, we still maintain our economic growth forecast at 4.8% YoY due to the lurking external risks.