As expected, 1Q2019 GDP rose 5.07% y/y and turned out to be slower than 4Q2018’s GDP growth of 5.18%, dented by private consumption which accounts for more than half of GDP as well as fixed investment which came in at 5.03% y/y ahead of April's presidential election. Part of the larger downtrend was concern that President Joko Widodo's focus on attracting investment and boosting consumption may not survive the election. Also, exports expanded at a slower pace by 2.08% y/y in 1Q2019.

We believe investment will return now that unofficial results are pointing to a victory by Widodo. He is in a quest to reboot the economy through infrastructure spending and has pledged to foster talent in order to attract advanced manufacturers. Such policies, added with a capital‐intensive proposal, could trigger rapid economic growth.

Bank Indonesia (BI) has kept interest rates on hold this year after six hikes amounting to 175bps in 2018. We now believe BI will likely shift to a dovish tone on its monetary policy with a possible rate cut later this year as there are growing signs that the current account deficit is narrowing in the economy, the Fed is maintaining rates in 2019 and inflation is expected to stay near the lower end of BI’s target range of 3.5% with a +/‐1%. We project 2019 GDP at 5% with our upside at 5.2% that falls within the official target range of 5.0%–5.4%.

• As expected, 1Q2019 GDP rose 5.07% y/y and turned out to be slower than 4Q2018’s GDP growth of 5.18%. Private consumption which accounts for more than half of GDP, dented the 1Q ahead of April's presidential election. It slowed to 5.01% y/y in 1Q2019 from 5.08% in 4Q2018 as consumers refrained from purchases in light of the election.

• Besides, fixed investment slowed to 5.03% in 1Q2019 from 6.01% in 4Q2018. Part of the larger downtrend was concern that President Joko Widodo's focus on attracting investment and boosting consumption may not survive the election. Also, exports rose at a slower pace by 2.08% y/y in 1Q2019 from 4.33% y/y in 4Q2018. Meanwhile, government spending climbed 5.21% y/y during the quarter from 4.56% y/y in 4Q2018.

• We believe investment will return now that unofficial results are pointing to a victory by Widodo. He is in a quest to reboot the economy through infrastructure spending and has pledged to foster talent in order to attract advanced manufacturers. Such policies, added with a capital‐intensive proposal, could trigger rapid economic growth.

• Bank Indonesia (BI) has kept interest rates on hold this year after six hikes amounting to 175bps in 2018. We now believe BI will likely shift to a dovish tone on its monetary policy with a possible rate cut later this year as there are growing signs that the current account deficit is narrowing in the economy. Also, with the Fed maintaining rates in 2019 and inflation expected to stay near the lower end of BI’s target range of 3.5% with a +/‐1%, there is flexibility for BI to cut rate. We are looking at a growth of 5% for 2019 with our upside at 5.2% that falls within the official target range of 5.0%–5.4%.

Source: AmInvest Research - 7 May 2019