Indonesia GDP growth likely to come in at 5.1 pct this year on stable consumption, says DBS

Indonesia’s gross domestic product (GDP) is expected to come in at 4.1 percent this year, on stability in the country’s consumption patterns, which has continued to support GDP growth. However, government consumption and investment growth came in below expectations, only to be offset by larger-than-expected net exports.

Indonesia’s sub-5 percent investment growth this year is disappointing on many fronts. Despite aggressive policy easing by Bank Indonesia and a more resilient rupiah, investment growth is set to slow from last year’s 5.1 percent pace, DBS reported.

Investments on construction, which make up 75 percent of total investments, have actually expanded by 6.5 percent in 2016, up from 6.2 percent last year. The drag stems from investments on machinery and equipment, which declined a steep 6 percent.

As such, manufacturing remains the key for stronger GDP growth next year. The most encouraging bit about the sector is the fact that foreign direct investment (FDI) into manufacturing has increased this year, even if total FDI might have moderated. FDI into manufacturing may reach a record-high USD 17bn in 2016.

"If this influx of FDI were to be sustained, it should increase demand for new investments in machinery and equipment. Recent trade data that suggest a bottoming out in imports of capital goods are supportive on this front," the report said.