Indonesia Macro Update - Economic Growth 05 May 2023

In line with expectations, Indonesia's 1Q23 GDP growth was 5.03% YoY (Cons: 4.95% YoY, KBVS: 5.03% YoY, Prev: 5.01% YoY). The official lifting of the PPKM (Community Activity Restrictions) on 30 Dec ’22 played a significant role in driving economic growth, particularly in the Transportation & Warehousing sector, which saw impressive growth (15.93% YoY), followed by the Manufacturing Industry (4.43% YoY), Wholesale & Retail Trade, Motor Vehicle & Motorcycle Repair (4.89% YoY), and Mining & Quarrying (4.92% YoY) which collectively contributed 48.93% to Indonesia's total GDP. On the other hand, the Agriculture, Forestry & Fisheries sector grew by a slower rate of +0.34% (YoY) and the Construction Sector only grew by +0.32% (YoY), although they still contributed 21.65% to the country's GDP. On the other hand, Household Consumption, which accounts for 52.88% of economic growth based on expenditure, grew by 4.54% (YoY), followed by robust growth in Exports of Goods & Services of 11.68% (YoY). Meanwhile, Government Consumption Expenditure grew by 3.99% (YoY), although the realization of Government revenue up to Mar ‘23 grew by 28.98% (YoY) and Government Spending grew by 5.70% (YoY). Similarly, the realization of Domestic Investment in 1Q23 which reached IDR328.9 tn (+16.46% YoY), only contributed 2.11% (YoY) to Gross Fixed Capital Formation (PMTB) during the same period. Thus, we see that this will be a saving grace for domestic economic growth, at least for the next two quarters. The impact of better mobility is also evident in the spatial-based economic growth, where during 1Q23, Java Island grew by 4.96% YoY and contributed 57.17% to the total domestic economy in the same period. Meanwhile, the push from commodity prices, which remained strong in 1Q23, also drove solid growth in Sulawesi Island (+7.00% YoY) and Kalimantan Island (+5.79% YoY). However, Maluku and Papua Islands experienced a slowdown in growth to 1.95% YoY (Prev: 4.20% YoY). We are of the view that this situation will be supported by well-maintained inflation in the future, allowing BI to lower BI7DRRR in 3Q23 and stimulate stronger credit demand in 2H23. We anticipate these will drive better economic growth, with an upward bias estimate between 5.0% (YoY) - 5.3% (YoY) by the end of 2023. We also hope that this condition will be further driven by a conducive domestic political situation amid the emergence of presidential candidates facing the 2024 presidential election.

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