Indonesia’s GDP Growth Likely to Improve Further in 2018

The Asean manufacturing Purchasing Manager’s Index (PMI) increased by 0.3 points to 50.2 in December, after contracting to 49.9 in November. The improvement in index was mainly attributed to better performance in Vietnam (53.4), Thailand (50.6) and Malaysia (50.5). Philippines sustained its expansionary level at 51.7, albeit lower than the prior month. This was reflected in higher new orders and employment led to expansion during the month, where businesses were optimistic about the production outlook in these countries.

We believe the Asean region’s 1H18 real GDP growth will likely show sustain economic growth, barring any major downside risks from external developments, especially the recent sharp selldown in global financial markets. This may cause some cautiousness among manufacturers in the region on new orders and international trade, if consumer and business confidence dampens, which may lead to some slowdown in global economic conditions in 2H18. Nevertheless, with healthy domestic demand (especially on investment), we believe Asean GDP growth will likely expand in tandem with IMF’s projection of 5.3% in 2018, the same rate of increase in 2017. However, we reckon that downside risk to economic growth in the region has increased.

Separately, in Indonesia, the country posted a better-than-expected GDP growth in fourth quarter last year, expanding from 5.1% yoy in 3Q17 to 5.2% in 4Q17. Private consumption and public consumption both improved by 5% and 3.8% respectively during the quarter. Investment growth remained supportive in 4Q17, expanding by 7.3% yoy in 4Q17 (7.1% in 3Q17). Going into 2018, the Indonesian government is expecting the country’s growth to be supported by investment in view of further infrastructure development in 2018, as well as pick up in global trade activity. Rainier Haryanto, the program director of the Indonesian government’s Committee to accelerate priority infrastructure in the country, guided that of the pipeline of 265 projects, 26 have been completed since the programme started in 2016 at a cost of US$3.4bn, including US$976m on the six projects finished last year.

Overall, Indonesia’s real GDP growth increased by 5.1% yoy in 2017 (5% yoy in 2016), and is projected by the government to grow in a range of 5.1-5.5% yoy in 2018. The upcoming MPC meeting of Bank Indonesia will be held on 15 February 2018. We believe BI will likely leave its main policy rate at 4.25%, after the last cut in August 2017 meeting.

Source: Affin Hwang Research - 9 Feb 2018