World Economy

Analysts Say Indonesia to See Better Growth

Analysts Say Indonesia to See Better Growth
Analysts Say Indonesia to See Better Growth

On Monday, Indonesia’s statistics agency, BPS, is scheduled to release Indonesia’s third quarter GDP data, important information that is closely followed by investors and analysts.

While most analysts expect to see accelerated economic growth in the third quarter, others remain skeptical as Indonesia’s gross domestic product was disappointing in the first two quarters of the year amid bleak domestic consumption, Indonesia Investments reported.

After seeing bleak economic growth in the first two quarters of 2017, with a modest growth pace of 5.01% (y/y) each, the Indonesian economy is expected to grow 5.13% (y/y) in the third quarter, hence hinting at limited acceleration.

Accelerating economic growth in Indonesia is expected to emerge on the back of an improving global picture (especially due to an improving economy in China, Indonesia’s biggest trading partner) and strengthening government spending.

For example, commodity prices have been experiencing an upward movement in 2017, particularly the coal price. For Indonesia, one of the world’s major commodity exporters, rising commodity prices provide ammunition for economic growth.

It is no coincidence that the Indonesian economy started to slow down after the big plunge in commodity prices after the end of the 2000s commodities boom (and after another massive commodity price drop starting from 2011).

The recent recovery in commodity prices, on the other hand, helped to cause a $3.2 billion trade surplus for Indonesia in Q3-2017.

Meanwhile, several other indicators also point at an improving Indonesian economy in the third quarter. For example, sales of cement and motorcycles have grown.

Rising cement sales indicate an increase in property and infrastructure development, while rising motorcycle sales imply that consumers’ purchasing power and consumer confidence have improved.

Recently, Bank Indonesia officials also said consumption in Indonesia is on the rise. The central bank kept its full-year growth target at the range of 5.0 to 5.4%.

Moreover, Bank Indonesia has aggressively cut its benchmark interest rate over the past 1.5 years (by a total of 200 basis points) in an attempt to boost credit growth and consumption. The impact of such aggressive monetary easing should be felt in Q3-2017.

The question also is to what extent Indonesia will be affected by another rate hike of the US Federal Reserve (possibly in December 2017) and its plan to reduce the size of its balance sheet.

Finance Minister Mulyani Indrawati said Indonesia has quite a comfortable balance of payments, solid economic fundamentals as well as monetary policy and therefore should be well equipped to deal with external pressures.

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