Indonesia Q2 GDP remains above market expectations on higher govt spending

Indonesia’s gross domestic product during the second quarter of this year remained above market expectations, supported by higher government spending during the period.

Indonesia’s Q2 GDP growth came in at 5.2 percent y/y, above market expectations of 5.0 percent and the actual 4.9 percent recorded during first quarter of 2016. Strong government spending growth, at 6.3 percent, led to the better than expected result.

Besides, household consumption growth was steady at 5 percent while investment growth eased back to 5.1 percent from actual 5.6 percent in 1Q16. Without stronger investment growth, overall GDP growth is still likely to come in at 5.1 percent this year, DBS reported.

The government has clearly stepped up its efforts in disbursing this year’s budget. For example, capital expenditure reached 22 percent of this year’s target by 1H16, compared to 11 percent and 18 percent during the same period in 2015 and 2014 respectively.

Other than the high base effects from last year, poor tax collection may also prompt the government to cut its spending towards the year-end. While operating expenditure is likely to suffer more than capital expenditure, overall growth of government consumption is still set to moderate, the report added.

Meanwhile, contribution from net exports to GDP has been practically zero for two consecutive quarters now. Exports have now contracted for seven consecutive quarters. Further, steady household consumption growth at 5 percent is likely to lead overall GDP growth trending around 5 percent as well.