ECONOMIC UPDATE – GDP - Robust growth sustained amid global volatility

ECONOMIC UPDATE – GDP

Robust growth sustained amid global volatility

 

Economic growth picks up to the highest level in Jokowi administration so far

Statistics Office (BPS) reported Indonesia’s 4Q18 GDP growth remained solid at 5.18% YoY (-1.69% QoQ), bringing full-year 2018 growth at 5.17% YoY and  came above our estimation and Bloomberg consensus (see table on left). This figure remarked the highest annual growth in Joko Widodo’s administration so far even though still far below his target at 7%

 

Robust consumption, weakening investment (see page 4 onwards)

Consumption growth remained above 5% at 5.08% YoY and brought FY 2018 figure at 5.05% (FY 2017: 4.94% YoY).  Breaking down the consumption components, it is seen that leisure activities drove the growth. Transportation and communication registered 6.14% YoY growth while restaurant and hotel had 5.85% YoY growth. Both had the highest growth since 2014 even though some natural disasters (Gunung Agung eruption, Lombok earthquake, Palu tsunami and Sunda Strait tsunami) disturbed foreign tourist arrival to Indonesia. Investment growth weakened to 6.07% in 4Q18 after having a pickup to 6.7% YoY growth 3Q18. This figure made FY2018 investment growth at 6.67% YoY, higher than FY2017 growth at 6.15% YoY. Buildings (5.02% YoY) and machine (12.28% YoY) sectors pulled down investment growth in 4Q18. Government consumption growth weakened to 4.56% YoY but the FY 2018 growth remained resilience at 4.80% YoY. The external trade figure came better than our expectation as export growth remained had positive growth of 4.33% YoY and import had 7.1% YoY growth.

 

GDP by sectors: still weak growth from agriculture and manufacture

Industry wise, the main source of growth came from services sector especially trade and communication. Trade sector had 4.39% YoY growth (FY 2018: 4.97% YoY) but this is the lowest growth in 2018. Communication sector booked 7.17% YoY growth, making the FY 2018 growth at 7.04% YoY. Agriculture sector recorded 3.87% YoY, no much change since the previous quarter. The growth was seemed stable at 3.91% YoY, slightly above its average since 2013 at 3.89% YoY.  On manufacture side, the growth was stable at 4.25% YoY, making FY 2018 growth at 4.27% YoY. Food and beverages industry experienced downtrend in growth as it only booked 2.74% YoY growth in 4Q18. We see it in line with the weakening food and beverages consumption as we mentioned it in page 4. Metal industry had significant growth of 15.52% YoY (FY 2018: 8.99% YoY) and machine industry grew 14.55% YoY (9.49% YoY). If these industries growth remains high, it may reduce Indonesia’s burden on import as the highest imported products usually came from machinery and equipment sector.

 

GDP growth at 5.1% in 2019

Indonesia ended 2018 with 5.17% YoY growth, showing some improvements from 2017. However, 2019 will be a harder year as global volatility started to affect Indonesia. Uncertainty from Fed’s move pushed Bank Indonesia to raise rate by 175 bps in 2018. Historically, a significant change in policy rate may affect investment growth a year after. So we predict lower investment growth at 5.3% in 2019 from 6.7% in 2018. Uncertainty from trade war may give negative effect to China’s economic growth. As most of Indonesia’s export goes to China, it may affect Indonesia’s export performance too. There is still downside risk to our CAD outlook at 2.5% of GDP. We predict GDP growth in 2019 will slightly lower to 5.1%