Indonesia Q1 GDP growth likely to come in at 5.1 pct y/y, to touch 5.3 pct this year: DBS Bank

Indonesia’s gross domestic product (GDP) for the first quarter of this year is expected to come in at 5.1 percent y/y and is likely to touch 2.3 percent through this year, according to forecasts by the DBS Bank.

While this would still represent an improvement from the 4.9 percent posted in 4Q16, the full-year estimate of 5.3 percent appears to be at risk. Unless both export and investment growth were to accelerate going forward, a downward revision to the forecast seems likely.

A stronger global demand has definitely helped to lift export demand, but the main boost for Indonesia has been commodity prices. Indeed, relative to the region, Indonesia’s exports of manufactured goods have continued to grow at a lacklustre pace.

Higher export earnings have yet to make an impact on household consumption growth though. Based on the retail sales survey index, household purchases are currently growing at circa 3 percent pace, much slower than the average 11 percent recorded last year. Motorcycle sales have also continued to lag behind auto sales, suggesting that even demand in the commodity-producing regions has not been that strong in 1Q17. At best, household consumption growth is likely to come in at 5 percent, just like it has done in the past 2 years.

Loan growth has been sluggish, staying below 10 percent y/y. But imports of capital goods were up 6.5 percent in 1Q17, posting the first expansion since 2012. Not surprisingly, Bank Indonesia has been a little more optimistic on investment growth, noting that non-construction investment growth has picked up pace in the period.

"If investment growth were to gain stronger momentum in the quarters ahead, our current 5.3 percent GDP growth forecast for 2017 may still be within reach," the report commented.