The economy grew slightly better in 4Q2018 to 5.18%y/y bringing the full-year growth to 5.17% y/y supported by consumption and investment. We believe the challenge is in 2019, the ability to prop up growth with net exports contracting in the last three quarters, especially with a more moderate global outlook predicated at 3.4%. Tighter liquidity in the domestic financial system, after six rate hikes in 2018 and government absorption of funds through bond sales, could also hamper growth. This could be partly offset by election-related spending helping consumption and better productivity from infrastructure projects, such as a subway in Jakarta.

But the favourable 4Q2018 result means that domestic demand is still good. This trend is expected to continue in 2019 supported by consumption and investment with the government spending expected to improve. That could mean that interest rates may have peaked with room for easing emerging. The state-owned Eximbank has been tasked to provide lenient export financing. We project growth would be around 5.2% - 5.4% in 2019 while the government’s growth target is 5.3%.

• The economy grew slightly better in 4Q2018 to 5.18%y/y from 5.17% y/y in 3Q2018, beating market consensus of 5.11%. This brings the full-year growth to 5.17% y/y which fell below our projection of 5.3%. Consumption, investment and government spending lifted 4Q2018 GDP

• Private consumption grew 5.08%y/y from 5.00%y/y in 3Q2018 supported by government’s cap on energy prices and cash handouts. Meanwhile, fixed investment rose 6.01%y/y from 6.96%y/y and supported by government spending which grew by 4.6%y/y from 6.27% y/y in 3Q2018. Net exports contributed negatively to the growth due to increase in imports, which rose 7.10% y/y in 4Q2018 (14.02% y/y in 3Q2018) while exports slowed down to 4.33% y/y in 4Q2018 (8.08% y/y in 3Q2018).

• The challenge in 2019 would be to prop up growth with net exports contracting in the last three quarters, especially with a more moderate global outlook predicated at 3.4%. Tighter liquidity in the domestic financial system, after six rate hikes in 2018 and government absorption of funds through bond sales, could also hamper growth. This could be partly offset by election-related spending helping consumption and better productivity from infrastructure projects, such as a subway in Jakarta.

• But the favourable 4Q2018 result means that domestic demand is still good. This trend is expected to continue in 2019 supported by consumption and investment with the government spending expected to improve. That could mean that interest rates may have peaked with room for easing emerging. The state-owned Eximbank has been tasked to provide lenient export financing. We project growth would be around 5.2% - 5.4% in 2019 while the government’s growth target is 5.3%.

Source: AmInvest Research - 7 Feb 2019