Indonesia’s Q2 GDP growth surprises on upside, domestic demand to gain momentum in H2

In the second quarter of 2016, Indonesia’s gross domestic product rose 5.18 percent year-on-year, according to Indonesia’s statistics agency, BPS. The economic growth for second quarter came in better than projections and above the first quarter’s downwardly revised growth of 4.91 percent year-on-year. Also, the BPS reported that Indonesia’s GDP on a quarterly non-seasonally adjusted basis grew 4.02 percent.

The surprising strong growth of Indonesia’s economy in the second quarter has been mainly driven by domestic demand, in particular, investment, government spending and household consumption that grew 5.06 percent, 6.28 percent and 5.04 percent year-on-year respectively.

Meanwhile, exports shrank in the second quarter by 2.73 percent year-on-year. Indonesia, being one of the less diversified exporters of Asia, has borne the force of the trade recession to trade, said ANZ in a research note. But the drag from trade has been more than reduced by strong domestic demand. In the second half of this year, domestic demand is likely to keep gaining momentum.

Also, it is seen that the pipeline of Jokowi stimulus measures are beginning to gain momentum as seen by robust growth in investment and government spending.

Investment and consumption are expected to drive domestic demand in the second half of 2016, stated ANZ. This takes into account reducing loan-to-deposit ratios for bank, strong rebound in bank lending in the second half with the help of amnesty inflows and a loosening of loan-to-valuation ratios for motor vehicles, housing and scooters, added ANZ. In the short term, growth would be underpinned by asset price inflation; however, it might become distort if it were left unchecked.