GDP: A solid pick up in 4Q15 but weak in annual basis

4Q15 GDP: A surprise higher-than-expected figure on the renascence of investment

Surprisingly higher compared to our as well as market projections, 4Q15 GDP growth surged to 5.04% YoY, well above 3Q15’s level of 4.74% YoY. The upswing in GDP growth was mainly due to greater government capital expenditure disbursement and private direct investment. Note that during 4Q15, government capital spending realization reached Rp213.3 tn, or 84.4% of the target allocated in the 2015 state budget (+54% compared to 2014’s level), whereas BKPM has reported 4Q15 investment realization achieved at Rp145.4 tn or up 20.8% YoY. Moreover, beating our expectation, continued 4Q15 solid direct investment paved the way to higher gross capital formation growth of 6.9% YoY (ours: 4.2%, 3Q15: 4.79%). On the flip side, the continued drop in oil prices, which was followed by lower Indonesian primary commodity prices such as CPO and coal, resulted in 4Q15 GDP exports having contracted 6.44% YoY (3Q15: -0.6%); at the same time, GDP imports also reduced by 8.05% YoY from 3Q14’s level of -5.9%. A larger contraction in imports was mostly due to continued sluggish domestic demand. Private consumption growth remained stagnant on prolonged low commodity prices, leaving 4Q15 figure only grew 4.92% YoY (3Q15: 4.95%), lower than our expectation. All in all, the 4Q15 figure translated into full-year 2015 GDP growth which decelerated 4.79% from 2014’s level of 5.02% (in line with our expectation).

4Q15 GDP by sectors: Some pushes from financial and infra-related industries

In the breakdown of sectors, higher 4Q15 GDP growth was driven by insurance and financial services (12.5% YoY), information and communication (9.7%), construction (8.2%) other services (8.5%) and companies’ services (8.1%). We note that those sectors had benefits from stronger growth engines from direct investment and government spending.  

Optimism has spread as expected 1Q16 consumer tendency index surged to 105.4

Improved economic activities have also been displayed by higher expected 1Q16 consumer tendency index to 105.4 from actual 4Q15 level at 102.8 which was mainly supported by lower inflation, higher household income and larger durable goods’ plans.   

Moderation may remain in 1H16 but GDP should show greater pick up in 2H16

Gloomy China and other emerging markets’ economic outlook would continue to derail global recoveries, keeping oil prices to remain at bay, further attenuating Indonesia’s exports. At this stage, Indonesia’s economic growth may stagnant at below 5% YoY in the 1H16. Nonetheless, since the government has released a relatively comprehensive policy packages to boost direct investment ahead, coupled with expected further lower BI rate of 6.75%, we expect 2H16 GDP to circumvent the downturn by exploiting higher government capital spending and improving direct investment. Therefore, we reiterate our view that Indonesia economic growth could accelerate to 5.1% this year.