Indonesia: 3Q18 GDP growth – In line with expectation

HIGHLIGHTS

3Q18 GDP growth: In line with expectation

• 3Q18 real GDP growth of 5.2% yoy was supported by investment activity and public consumption whereas net exports remained a drag on GDP growth.
• We revise our 2018 GDP growth forecast lower by 0.1% pt to 5.2% on account of softer global growth, a weaker rupiah and tighter monetary policy.

3Q18 GDP growth eased to 5.2% yoy, as expected
3Q18 real GDP growth was in line with expectation at 5.2% yoy, easing from the 4.5-year high of 5.3% yoy in 2Q18. On a quarterly basis, GDP rose 3.1% qoq (+4.2% qoq in 2Q18).

The drag from net exports extended into fourth quarter
The contribution of net exports remained a drag on GDP growth (-1.1% pt vs. -1.2% pt in 2Q18) as import growth stood resilient to meet expanding domestic demand (+5.8% yoy in 3Q18 vs. +5.4% yoy in 2Q18) while moderation in export performance due to lower O&G exports was mitigated by a bump up in exports of services as a result of increased tourist spending during the Asian Games.

Sports event supported discretionary spending
The Asian Games also boosted household spending on apparel, footwear & maintenance, restaurant & hotel, as well as transport & communication, which at the same time was driven by higher car sales. Nonetheless, selected school closures during the Asian Games impacted education consumption whereas F&B consumption normalised post the Lebaran celebration. As a result, household consumption growth marginally eased to 5.0% yoy in 3Q18 (+5.1% yoy in 2Q18).

Public consumption growth at 11-quarter high
Public consumption growth strengthened to 6.3% yoy (+5.2% yoy in 2Q18), the strongest expansion since 2015, on the back of higher spending on personnel, materials and subsidies. Investment momentum recovered in 3Q18 (+7.0% yoy vs. +5.9% yoy in 2Q18) as the growth in buildings & structures picked up the slack from the long festive holiday in 2Q18, which in turn also supported construction activity (+5.8% yoy vs. +5.7% yoy in 2Q18). Investment in machine & equipment remained resilient due to the delivery of rolling stocks that are expected to continue into 4Q18.

2018 GDP growth revised lower to 5.2%
We revise our 2018 GDP growth forecast lower by 0.1% pt to 5.2% (vs. +5.3% previously) as we think economic activity is unlikely to improve significantly in 4Q18 (+5.2% yoy in 9M18) on the back of 1) a weaker global growth outlook amid US-China trade tension, 2) a softer rupiah, and 3) a tighter monetary policy after Bank Indonesia’s (BI) 150bp rate hikes to maintain macroeconomic stability. We expect BI’s monetary policy to remain guided by the need to maintain attractive yield differentials and a manageable current account deficit (CAD). As such, we anticipate another 25bp hike by the central bank in December, lifting the policy rate to 6.00% by end-2018.

Household consumption growth eased slightly to 5.0% yoy in 3Q18 as F&B consumption normalised post the Lebaran celebration. The Asian Games boosted household spending on apparel, footwear & maintenance, restaurant & hotel, as well as transport & communication, which was at the same time driven by higher car sales. Nonetheless, selected school closures during the Asian Games impacted education consumption.

Investment momentum picked up in 3Q18 (+7.0% yoy vs. +5.9% yoy in 2Q18) on the back of stronger outlays in buildings & structures and other equipment. Capital expenditure on machine & equipment remained resilient, expanding 22.1% yoy (+22.3% yoy in 2Q18).

Agriculture output growth weakened in 3Q18 due to slower expansion in food crop and CPO production. Coal mining single-handedly lifted mining growth as O&G output declined. Stronger manufacturing activity was supported by transport equipment, tobacco processing, basic metals, textiles & wearing apparel as well as paper and printing. Construction activity was supported by ongoing infrastructure projects as part of the government’s national strategic projects. The Asian Games lifted activities in the wholesale & retail trade, accommodation, food & beverages as well as information & communication segments.

Originally published by CIMB Research and Economics on 6 November 2018.