ECONOMIC UPDATE - GDP growth - Welcome to trillion dollar economic groups

ECONOMIC UPDATE - GDP growth reading

Welcome to trillion dollar economic groups

 

Highest growth since 2013

Statistics Office (BPS) data showed 4Q17 GDP growth picked up to 5.19% YoY with quarterly growth came in at -1.70% QoQ, which is relatively in line with our estimation and above Bloomberg consensus (see table on left). Full year growth was at 5.07% which made Indonesia for the first time reached a trillion US dollar GDP. Indonesia’s nominal GDP had reached Rp13,588 tn or USD 1,015.6 bn if we convert using average Rupiah in 2017 at Rp 13,380.

 

Stronger growth led by investment

The growth was still driven by investment which expands 7.27% YoY  in 4Q17 and led full year investment growth at 6.15% YoY or higher than our initial forecast in mid year 2017 at 5.8% YoY. On investment growth, infrastructure development still became the main driver while private investment was seen started to gain traction from higher capital goods imports. Consumption was still stagnant at 4.97% YoY even though it started to recover as the growth in 4Q17 was the highest in 2017. Food and Beverages, which had biggest proportion of consumption, stimulated higher consumption growth as it grew 5.37% YoY or the highest in 2017. Government consumption growth was higher at 3.81% YoY following better performance of state revenue which reached 97.2% of target in 2017. As for net exports, the result was in line with our prediction where imports have a higher growth at 11.81% YoY than export at 8.5% YoY.

 

4Q17 GDP by sectors: agriculture and manufacture output growth fell

Industry wise, the main source of growth was still came from manufacturing sector which posted lower growth at 4.46% YoY in 4Q17 making the full year growth at 4.27% YoY. Construction, which sector growth was mainly driven by government’s infrastructure development, followed as the next source of growth as it recorded 7.23% YoY growth in 4Q17 and 6.79% YoY for full year 2017. Agriculture sector had a downtrend in 4Q17 as it only posted 2.24% YoY growth even though the full year growth at 3.81% YoY was still better than previous 2 years. Communication still became one of the most lucrative sectors as it had 8.99% YoY growth which makes the full year growth at 9.81% YoY. Other sectors growth can be seen in exhibit 3.

 

GDP growth at 5.3% in 2018

We expect consumption to have gradual recovery in 2018 to 5.06% YoY. If we see the 4Q17 consumption data, transportation sector had lower growth due to Mount Agung eruption (see exhibit 4). Considering the transportation sector had a normal growth at around 5.4%, the consumption should be around 5.1% YoY which showed that 4Q17 consumption growth had pointed to a recovery. As for investment, we expect higher growth in 2018 at 6.3% YoY from 6.15% YoY in 2017. Infrastructure development still became the main theme while we also expect private investment to pick up due to better ease of doing business, rating upgrade and high commodities price. As for net export, we will revise it soon due to better global demand and higher imports expectation. As of now, we still maintain our GDP forecast for 2018 at 5.3% YoY.