Indonesia’s Real GDP Growth Was Below Market Expectations in 3Q17

Indonesia’s real GDP growth rose slightly by 5.06% yoy in 3Q17 (5.01% in 2Q17), lower than market expectations of 5.19%. This was attributed from lower-than-expected consumer spending. Growth in private consumption, with a total share of 53.8% from overall GDP, rose moderately by 4.93% yoy during the quarter, as compared to 4.95% yoy in the prior quarter.

However, growth in investment turned around sharply from -0.02% yoy in 2Q17 to 5.55% in 3Q17, supported by significant improvement in building & structures (2.3%), machine & equipment (1.5%) as well as vehicles (0.4%). Net exports also expanded by a double-digit growth for the fourth consecutive months. During the quarter, exports rose sharply by 17.27% in 3Q17, the highest yoy growth in six years, while imports increased by 15.09%, the highest yoy growth in 5 years, driven by rising non oil and gas commodity trade activities, in tandem with improvement in commodity prices of palm oil and coal.

Similar to export trends in other Asean countries, we believe Indonesia’s trade activities will likely remain healthy with rising demand from China and other major economies on Asean goods. We believe real GDP growth is on track to achieve the government’s official forecast of 5.2% this year, and likely to be supported by recovery in trade performance, as well as expectations of a slight pick up from private consumption in the fourth quarter.

Separately, as expected, Bank of Thailand (BOT) maintained its policy rate at 1.5% for 21 straight meetings. In the statement, the central bank highlighted about its optimistic view on Thailand’s growth outlook, but remained cautious on several downside risks, including “impacts from regulations on immigrant workers, uncertainties pertaining to US economic and foreign trade policies, and geopolitical risks”. Thailand’s real GDP growth will be released on 20th November 2017, which will likely be around 3.8% yoy estimated for 3Q17.

Similarly, Bangko Sentral ng Pilipinas (BSP) kept overnight reverse repurchase rate at 3%, while overnight lending facility rate and overnight deposit facility rate were both maintained at 3.5% and 2.5% respectively. On inflation front, despite rising utility rates and fuel prices, the country’s inflation is expected to be manageable and will likely to stay within the range of 2-4%. In the first ten month of 2017, inflation rose by 3.2% on average, as compared to 1.6% yoy in 10M16. However, we believe BSP will likely keep its main policy rate unchanged in the next policy meeting scheduled on 14 Dec 2017.

Source: Affin Hwang Research - 10 Nov 2017