Indonesia: Slower Q2 growth supports loosening – Standard Chartered

Aldian Taloputra, senior economist at Standard Chartered, notes that Indonesia’s GDP expanded 5.0% y/y in Q2-2019, slightly lower than 5.1% in Q1.

Key Quotes

“Household consumption accelerated by 5.2% y/y, the fastest since 2014, supported by election-related and festive-season spending. However, this was offset by muted investment spending partly due to the political uncertainty and cautious private-sector investment activity.”

“Exports continued to contract amid weaker global demand and softening sentiment due to US-China trade tensions. Manufacturing-sector growth was the slowest in Q2 since the 2008 global financial crisis, highlighting the need for structural reforms to boost the sector’s competitiveness and productivity.”

“We maintain our full-year 2019 GDP growth forecast at 5.1%, but see downside risk on a fading of the temporary boost from election spending and a weak export outlook in H2.”

“Softer Q2 GDP data confirms a weak growth trajectory for Indonesia, which supports the case for loosening monetary policy. We maintain our call of further total policy rate cuts of 50bps until Q1-2020, subject to Indonesian rupiah (IDR) stability.”