Indonesian imports likely to contract on subdued household consumption

Indonesian imports during the month of June are expected to contract despite hopes that the auspicious month of Ramadan will spike consumption, leading to rise in imports. A double-digit contraction is expected for the Indonesian imports in the upcoming trade data to be released this week.

Household consumption growth is likely to have remained steady at 5 percent in the second quarter of 2016. And there is no reason to expect any marked changes going forward. Without much help from investment growth or export earnings, 5 percent household consumption growth is likely to translate to overall GDP growth of around 5 percent as well for the year, DBS reported.

In addition, imports of consumer foods have failed to offset the disappointment in April and May. Total imports of consumer goods came flat in the second quarter of 2016, after the sharp jump of 24 percent in the previous quarter.

"While the economy seems capable, in theory, to grow by as much as 7 percent per annum, we reckon that potential growth is around 5.5 percent in the near-term," DBS commented in its report.

The growth forecast comes in given persistent infrastructure bottlenecks that will take time to be resolved. This also signifies that current growth is close to achieving the near-term potential. However, growth may not spring if the string of monetary policy loosening this year is not accompanied by acceleration in fiscal spending.