Indonesia's regional GDP to grow by 4-7% in 2020: UOB

Indonesia’s economy clocked a “relatively stable” growth at 5.02 per cent year-on-year in Q3 2019, thanks to expansions in most of Indonesia’s regions, noted UOB.
JANUARY 14, 2020 - 4:53 PM

Economic performance in Indonesia will “continue to improve in 2020” on the back of increased exports and imports, rising private consumption, and growing investment, said UOB analysts in a research note on Tuesday.

This comes as Indonesia’s economy clocked a “relatively stable” growth at 5.02 per cent year-on-year in Q3 2019, thanks to expansions in most of Indonesia’s regions, noted UOB.

UOB said: “Overall, 3Q19 regional economic performance was underpinned by strong domestic demand.”

While most regions clocked a gross domestic product (GDP) growth above 5 per cent year-on-year, Papua economy shrank by 15.11 per cent year-on-year, making it the only region to experience contraction in Q3. 

Further, even though investment has increased due to government infrastructure projects and downstream mining projects, government consumption slowed across the region in Q3, as changes take place in government institutions post general election. 

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That said, UOB expects Indonesia’s regional GDP to expand by 4.0 per cent to 7.0 per cent in 2020. 

UOB projects that an improved global economy will lead to more exports than 2019.

“Imports might also increase due to the need of capital goods for various investment projects i.e. downstream processing of mining products,” added UOB.

UOB also said a larger increase in provincial minimum wage from 2019 will likely drive private consumption in 2020, while investment from government and private projects will continue to power the economy.

Growth in Java slowed to 5.6 per cent year-on-year in Q3 2019, from 5.7 per cent in Q2, owing to weaker household consumption.

UOB expects Java’s economic growth to lie somewhere between 5.5 per cent and 5.9 per cent, as export recovers with an improved global economy and domestic spending strengthens with higher purchasing power. 

“Increase in business optimism post 2019 presidential election is expected to bring a positive impact on future investment prospects as well as the capital inflow,” added UOB.

Similarly, Sumatra’s economic growth dropped to 4.5 per cent year-on-year in Q3 2019, from 4.6 per cent in Q2, mainly due to both weaker consumption and investment. 

However, household consumption, investment spending and exports should improve in 2020, allowing Sumatra’s economy to grow by 4.5 to 4.9 per cent.

Kalimatan’s economy grew by 5.9 per cent year on year, up from 5.6 per cent in Q2, supported by strong investment spending in the region.

That said, UOB expects Kalimatan’s growth to moderate to 4.0 to 4.4 per cent in 2020, as coal exports to China will likely decrease amid declining Chinese demand.

Balinusra’s economy also expanded in Q3 2019 by 5.3 per cent, against 5.0 per cent in the previous quarter, due to higher private consumption and exports. 

UOB further projects its economy to increase by 5.6 per cent to 6.0 per cent, thanks to growing household consumption, government and investment spending, and exports.

Lastly, Sulampapua’s economic growth accelerated to 2.3 per cent year-on-year in Q3 2019, from 0.7 per cent in the previous quarter, thanks to strong investment and exports. 

2020 will be a good year for the region - UOB expects its economy to “return to its normal growth level” between 6.5 per cent and 6.9 per cent, on the back of domestic consumption and better export performances.