The 3Q 2017 GDP growth missed both our and consensus expectation of 5.2% by registering a growth of 5.1%. With the lower-than-expected GDP growth, the rupiah fell 0.19% to 13,525 against the USD while against the Malaysian ringgit it weakened by 0.31% to 3,195.91.

Growth in 3Q 2017 was supported by exports due to the rebound in commodity prices and investment while household spending remained muted even after eight rate cuts since the beginning of 2016. The soft household spending could also be due to a slowdown in wage increases that may have put pressure on lower-income households.

We feel that the disappointing GDP data, coupled with low inflation keep the door open for Bank Indonesia to continue easing its monetary policy. Room for further easing in 1Q 2018 is still on the table, especially as inflation continues to be benign and if the rupiah remains stable. While the official target for 2017 GDP is 5.2%, we are looking at a marginally lower growth of 5.1%. For 2018, both our and the government projection is at 5.4%.

• The economy expanded at an average of about 5% over the past three quarters. The 3Q 2017 GDP of 5.06% y/y grew slower than our and consensus expectation of 5.2%. Given the lower-than-expected GDP growth, the rupiah fell 0.19% to 13,525 against the USD while against the Malaysian ringgit it weakened by 0.31% to 3,195.91.

• Growth was supported by exports and investment which helped cushion the continued weak household spending. While a rebound in commodity prices has helped deliver double-digit growth in exports for most of 2017, investment also has gained. Exports grew 17.3% while fixed capital formation, which includes investment in factories and land, rose 7.1%.

• Consumer spending and credit growth remained muted, even after eight rate cuts since the beginning of 2016. Also, it could be due to a slowdown in wage increases that may have put pressure on lower-income households. Household spending, which accounts for nearly 60% of GDP remained subdued at 4.9%.

• We feel that the disappointing GDP data, coupled with low inflation keep the door open for Bank Indonesia to continue easing its monetary policy. Room for further easing in 1Q 2018 is still on the table especially of inflation continues to be benign and if the rupiah remains stable. While the official target for 2017 GDP is 5.2%, we are looking at a marginally lower growth of 5.1%. For 2018, both our and the government projection is at 5.4%.

Source: AmInvest Research - 7 Nov 2017