Indonesia's slight GDP dip is no cause for worry

Consumption and investment are still roaring.

Here's more from OSK-DMG:

The Indonesian economy grew by 6.17% yoy in 3Q12 from 6.4% in 2Q, the eighth straight quarter that growth has
exceeded 6.0%. On a qoq sa basis, the economy expanded at a faster 3.21% in 3Q vs. 2Q’s 2.8%. Driving the Indonesian
economy were continued resilient private consumption and rising investment spending, which grew by 5.68% and 10.02%
yoy respectively, broadly in line with our expectations. The continued robustness in domestic demand allowed the
economy to weather the weakness on the external front where exports declined 2.78% yoy in 3Q after expanding 1.88% in
2Q. Surprising on the downside was government spending, which fell 3.22% yoy in 3Q from 7.00% in 2Q.

Growth, which has averaged 6.3% in the first nine months of the year, should continue to be underpinned by consumption
and investment with support from accommodative monetary policy. Fiscal support however is unlikely to be as aggressive
as in the 2008-09 period, but could accelerate as the presidential election gets closer. On the external front, weak
commodity prices and global demand should continue to put downside pressure on the economy, but should not subtract
significantly from GDP growth. For 4Q, we think that there could be upside to our GDP forecast of 6.0% from robust
domestic demand, especially investment spending, and economic growth could come in around 6.1% in 4Q instead. This
could boost full-year GDP to 6.3% for 2012 from our previous projection of 6.1%. As for 2013, we maintain our GDP
forecast of 6.2% for now.

To date, the economy has been expanding robustly with inflation picking up. Moreover, there is a need to accommodate
adjustment in the external balances in light of deficits in the current account since 4Q last year, while the rupiah has
weakened nearly 6.0% ytd. These then suggest that BI is likely to hold its benchmark reference rate steady at 5.75% for
the rest of this year to anchor inflationary expectations and to stabilize the rupiah. Should the central bank need to act
against inflationary pressures in the meanwhile, it is likely to use other measures like the FASBI. For 2013, we think that the
balance of risk remains tilted to a rate hike as the global economy stabilizes and inflationary pressures build up.