Indonesia: Q4 GDP - Resilient growth to keep Bank Indonesia on hold for now

Key Points

• There’s no market surprise as Indonesia’s Q4 GDP grew 5.04%yoy, up from 4.94%yoy in Q3. This brings GDP growth in 2023 to 5.05%, in line with market consensus. But this marks a modest slowdown from the 5.3% pace in 2022 and falls short of the government’s 5.3% target. Market reaction was relatively muted in the wake of the data release.
• The modest growth uptick was mainly driven by government spending (+2.8%yoy from -3.8%yoy in Q3) and an improvement in exports (+1.9%yoy from -4.3%yoy in Q3), helping to offset a slower pace of growth seen in private consumption and fixed investment (Chart 1).
• Domestic demand is feeling the impact of tight domestic monetary conditions and ongoing election uncertainty. Private consumption growth moderated to 4.8%yoy in Q4 from 5.1% in Q3, while fixed investment slowed to just 5%yoy from 5.8%yoy in Q3.
• We maintain our forecast for Indonesia’s GDP growth of 5.1% in 2024, unchanged from last year’s growth. Household consumption and fixed investment will be impacted by high interest rates, but election related spending and a continued pickup in exports will provide an offset. President Jokowi has ramped up the disbursement of cash aid and increased the wages of civil servants, while the IMF has revised up its 2024 economic outlook for US (+0.6ppts to 2.1%) and China (+0.4ppts to 4.6%). The downside risk will stem from prolonged election uncertainty.
• Today’s GDP print points to an economy that’s still relatively resilient. And with the IDR falling by 2% against the US dollar year-to-date, we think the BI won’t front-run the US Fed in cutting rates to avoid causing unnecessary currency volatility.