Maybank says the better than expected GDP performance year-to-date of more than 5.4% in Indonesia, particularly in investment and exports, means a raise in its 2022 GDP growth forecast to more than 5.3% from the initial +5%.
"We raise our 2022 GDP growth forecast to +5.3% (from +5%). We maintain our 2023 GDP growth forecast at +5.1%. While Indonesia’s growth has been resilient this year despite external headwinds (China lockdowns, Russia-Ukraine war, aggressive global monetary policy tightening), momentum may ease in 2023 due a significant slowdown in external demand, impact of BI’s policy tightening, and higher fuel costs," says the analysts.
The third quarter GDP growth of 5.7% came in above the 5.5% and consensus 5.6% expectations, says Maybank, adding that this is bolstered by firm investment and robust exports.
GDP Firms on Higher Investment
Household consumption, however, softened despite last year’s low base. The GDP is also the fastest pace in 5 quarters, while expanding by +1.8% from the previous quarter (vs. +3.7% in 2Q). Third quarter real GDP came in +5.6% higher than pre-pandemic (3Q19) levels, it says.
On the expenditure side, household consumption eased slightly despite last year’s low base (due to Delta wave), likely reflecting the impact of the fuel price hike in early September which weighed on consumer confidence and retail sales.
Expenditure on food & beverages and household equipment slowed, offsetting the uptick in transportation & communication and restaurant & hotel.
On the other hand, gross fixed capital formation (+5% vs. +3.1% in 2Q) accelerated mainly due to the surge in investment in machine & equipment and vehicles , which outweighed the slowdown in buildings & structures.
"This is in line with the jump in foreign direct investment of 66.4% in 3Q (see Fig 3) driven by downstream projects including nickel and copper.
Government consumption (-2.9% vs.-4.9% in 2Q) fell for the third straight quarter as the government continued to cut back on Covid relief programs. Net exports of goods & services remained robust as exports (+21.6% vs. +20% in 2Q) accelerated on strong demand for commodities and a tourism rebound (services exports jumped by +82.8%).
On the supply side, the reopening tailwind boosted growth in consumer-related sectors including transportation & storage, accommodation & food services, and wholesale & retail trade. Public admin and education services rebounded after 2 quarters of decline, while momentum eased in real estate, finance & insurance, and infocomm.
Manufacturing and agriculture picked up in 3Q, while mining & quarrying and construction moderated.
BI to Hike by +25bps in Nov
"We expect BI to hike by a smaller +25bps in the upcoming meeting on 17 Nov to support domestic demand, after two straight meetings of +50bps hikes.
"Core inflation (+3.3% in Oct) is picking up more slowly than expected despite the +30% fuel price hike in Sep (see Indonesia Economics - Inflation Lower than Expected in October; Trim Forecasts, 1 Nov 2022).
"Foreign reserves fell by a smaller $585mn from the previous month to US$130.2bn as of end October (see Fig 4), compared to the $1.4bn drop in September."