Indonesia’s economy expanded 5.2% year-on-year (YoY) in the fourth quarter (4Q) of 2017, beating a consensus estimate of 5.1% growth. For the full year, the region’s largest economy grew 5.07% YoY.
The 4Q figure indicates that Indonesia’s gross domestic product (GDP) growth is continuing to accelerate. In fact, the 5.07% growth figure is the strongest full year figure since 2013, while the 4Q number is the best quarterly GDP growth figure since June 2016.
The positive economy figures came in as a surprise as stronger domestic demand helped offset moderating exports. Private consumption, which makes up about 56% of Indonesia’s economic growth, increased 5% YoY in 4Q, slightly higher than the 4.9% growth in 3Q.
As it is now stabilising at the 5% level, we foresee private consumption to pick up with the upcoming regional elections and the Asian Games in mid-August. The key to unlock significantly accelerating economic growth in Indonesia is a recovery in private consumption.
According to Bank Indonesia, the lower middle-class segment in particular is reluctant to spend their money. We are of the view that a robust recovery in consumer confidence will continue to drive Indonesia’s private consumption moving forward.
We are optimistic the Indonesian economy growth will meet the government’s target of 5.4% growth in 2018. Government spending accelerated at 3.8% YoY in 4Q. The Indonesian government has boosted spending on infrastructure development across the archipelago as this will cause a multiplier effect and encourage structural economic and social growth.
The availability of infrastructure tends to improve the connectivity of urban and rural areas, which will eventually attract more private investment.
According to Badan Pusat Statistik Indonesia, investment growth in Indonesia — gross fixed capital formation — reached 7.3% YoY, hitting its four-year high since 2013.
This acceleration may very well be related to the improving ranking of Indonesia in the World Bank’s Ease of Doing Business index to 72nd position last year from 91st position earlier.
Jakarta is also committed to improving the investment climate through deregulation. Going forward, infrastructure projects and robust investment growth are expected to continue supporting economic growth in 2018.
(Source: The Malaysian Reserve)