• Indonesia’s 2024 outlook should be promising; however, some risks still linger, especially inflation and global uncertainties, based on our discussion with the Ministry of Finance’s Fiscal Policy Agency. After the civil servant salary increase, the Government is looking to raise consumer spending further with the Aidil Fitri and 13th month bonuses. Foreign direct investment (FDI) – an expected main GDP growth driver this year – should rise post-election. We see Indonesia's economic future influenced by several global factors, including China's growth trajectory. Our sector picks are banks, cement, and companies benefitting from mineral downstreaming.

• Indonesia's Ministry of Finance targets a 5.2% annual GDP growth rate in 2024, supported by increased investment and consumption. However, there is a risk that consumer spending growth may be muted due to rising inflation, particularly in food prices. January's inflation stood at 2.57% YoY, within the government's target range. Notably, consumer spending from January to February was influenced in part by the increased expenditure of nongovernmental institutions, such as political parties, preceding the election.

• The Indonesian Government is implementing steps to raise consumer spending further through the Aidil Fitri and 13th month bonuses to civil servants near the Lebaran festivities, as well as social assistance and food subsidies. The Government is well aware of the food security issue and potential impact of this year's El-Nino so it is taking steps to increase rice stock inventory efficiency by adding 1.5m tonnes to Bulog rice stocks on top of the 53m tonnes of rice produced per year in order to stabilise market prices.

• Indonesia's economic future is influenced by several global factors, including China's growth trajectory. While China’s property industry was hit hard, our economists believe the country will recover and its trade relations will strengthen. We also see a bright prognosis for FDIs in the country this year, particularly EV manufacturing, as seen by Chinese automaker BYD's involvement. Healthy FDIs in the building and development sectors are also expected to continue this year.

• FY23 tax collection exceeded target, owing to rising e-commerce tax revenue. The tax ratio for 2023 is 10.21% of GDP, and the Government is looking into ways to boost the tax ratio and improve revenue collection efficiencies through existing tax changes. This has prompted debates about prospective value-added tax or VAT hikes, as well as initiatives to improve tax compliance through identity number linkage.

Source: RHB Securities Research - 21 Feb 2024