Indonesia’s economic growth went up marginally to 5.18 per cent in the fourth quarter of 2018, from 5.17 per cent in Q3.
This is slightly higher than economist expectations and brings gross domestic product (GDP) growth for FY18 to 5.17 per cent, against 5.07 per cent in 2017.
Citi economist Helmi Arman said that the pickup of growth in 2018 was engineered by bringing back the “old growth model”, which involves a combination of external stimulus and reintroduction of fuel subsidies. He also noted that additional stimulus to domestic demand also came from stronger infrastructure buildup.
In Q4, both consumption and investment growth held up despite the Indonesian rupiah breaching the Rp15,000/US$1 psychological level, said Mr Arman. However, the external demand has begun to wane as the outlook for commodity exports weakens.
Going into 2019, the economist said that consumption growth is “usually robust” before national elections. However, with potentially softer external stimulus this year, growth momentum will be challenging to sustain in the second half of 2019, said Mr Arman.
With state-owned enterprises unable to shoulder energy cost overruns indefinitely, household energy bills may rise after the elections and the Islamic holy month that follows, he added.
The economist also expects slack to emerge in 2H19 after the peak of infrastructure construction which is likely to happen this year. It is not clear if corporate capex could pick up the slack, given softness in foreign direct investment trends, he added.
He projects slightly lower GDP growth of 5 per cent in 2019, but with an improvement in net exports and the current account deficit.
Mr Arman thinks the possibility of a rate cut by the Indonesian central bank seems “more remote”, with Q4 numbers showing resilience in the economy. He believes that the Bank of Indonesia’s emphasis on growth preservation will likely be reflected in their forex policy – allowing the appreciation of the Rupiah on the back of inflows – rather than interest rates.