The 5.06% y/y gain in 4Q2017 GDP was supported by domestic demand. Taking into account of the 4Q2017 GDP growth, it puts the average growth for 2017 at 5.1%, which fell marginally lower that our expectation of 5.2% but higher than the 5.03% growth logged in 2016. 2018 looks promising with the country heading for regional elections at mid-year which culminates with a national election in 2019. In the last major election, we found an additional 2ppt increase in government spending growth. Supported with better household spending, moderate inflation and business expenditure from construction and manufacturing, positive net exports from elevated commodity prices, and higher global growth, Indonesia should see 2018 GDP of around 5.4%.

• The 4Q2017 GDP grew 5.19% y/y from the 5.06% y/y recorded in 3Q2017. Growth was driven by private sector investment as domestic fixed capital formation rose 7.3% y/y. Government spending also recovered to 3.8% y/y from 0.3% y/y in 3Q2017. Also household consumption climbed 4.97%, mostly unchanged from 3Q2017.

• Taking into account of the 4Q2017 GDP growth, it puts the average growth for 2017 at 5.1%, which fell marginally lower than our expectation of 5.2% but higher than the 5.03% growth logged in 2016. Looking at 2018, we expect the outlook to be promising. The country will be heading to regional elections at mid-year which culminates with a national election in 2019.

• During the election years, there will be a significant improvement in domestic demand, especially government spending. In the meantime, we expect household spending to rise on the back of moderate inflation. Business spending is also likely to show sustained improvement with construction and manufacturing leading the growth.

• Also, net exports should again positively contribute to overall growth on the back of elevated commodity prices and higher global growth. We project the economy to grow around 5.4% in 2018.

Source: AmInvest Research - 6 Feb 2018