Indonesia set for 6.1% YoY GDP growth

The economy has been resilient and is expected to remain so in the coming quarters.

DBS Group Research noted:

GDP growth of 6.1% YoY is expected for 3Q, marking a marginal slowdown from 6.4% in the preceding quarter. Headline economic growth has thus far shown very little reaction to external headwinds. In fact, sequential growth has averaged 1.6% QoQ sa over the past four quarters and is projected to be down just a shade to 1.5% in 3Q. In short, the economy has been resilient and is likely to remain so in the coming quarters.

High frequency indicators suggest that consumption growth will stay strong. Retail sales in July and August continue to increase at a brisk double digit clip of 19.9% YoY and 11.4% YoY respectively. Car sales also mirror this trend, with average monthly YoY growth of 25.2% this year.

Motorcycle sales have bucked the trend since early late December, but the 44.6% MoM rebound in September could point to some stabilization in sales. With inflation still relatively low and conducive for consumers, private consumption growth is projected to reach 4.9% YoY. Investment will be another bright spot.

Our tracking model suggests that gross fixed capital formation growth will reach 12.8% YoY in 3Q. Data from the Investment Coordination Board (BKPM) indicated that domestic investment rose by 36.7% YoY while foreign investment rose by 21.7% YoY. Notably, the secondary sector dominated overall investment.

Meanwhile, net exports and inventories will likely be key drags. Weak external demand has persisted as represented by the negative YoY export growth numbers over the last few months. Export weakness has probably contributed to the sizable buildup of inventory in 1H. Some destocking may take place in 2H, representing a drag to headline growth.

Going forward, the external account remains the biggest risk to the growth story. Sustained outpacing of domestic economic growth relative to the rest of the world has resulted in a sharp widening of the current account deficit through 1H. This can largely be attributed to the divergence in exports and imports, which pushed the trade balance into deficit territory.

A return to trade surplus in August and September has eased concerns slightly. But with lackluster global growth ahead, a gradual cooling stance may be maintained by the authorities to ensure current account stability.