Indonesia Macro Update - Economic Growth 06 Feb 2023

In-line with our expectation, Indonesia's 4Q22 GDP growth came in at +5.01% (yoy) / +0.36% (qoq) and brought the overall 2022 GDP at +5.31% (vs. KBVS: 5.35% vs. 2021: +3.70% yoy). This condition also drove the nation’s Per Capita GDP up from IDR62.2 million or USD4,349.5 in 2021 to IDR71.0 million or USD4,783.9 at the end of 2022. We also view this as one of the factors that driving economic growth from the expenditure side, especially Household Consumption Expenditure which grew +4.48% (yoy) in 4Q422 or +4.93% during 2022. Meanwhile, domestic commodity value-added initiative also contributed positively to the growth of the Processing Industry which surged +5.64% (yoy) in 4Q22 or +4.89% (yoy) during 2022. However, the average inflation rate that reached +5.55% (yoy) during 4Q22 (vs. +5.19% yoy in 3Q22) was a contributing factor that dragged the economy below its full potential. Furthermore, the inflation, which was largely driven by the subsidized fuel price hike, dragged in the population's disposable income and hampered the people’s mobility - during the high-season period of school holiday, Christmas, and New Year -, which reflected on the decrease in the Transportation and Warehousing sector growth of only +16.99% in 4Q22 (vs. +25.8% yoy in 3Q22). Meanwhile, government spending adjustment, specifically the reduced PEN program that was implemented during the pandemic, drove the economic growth slower from the Expenditure side at -4.77% yoy in 4Q22. We are of the view that Indonesia's 2022 economic growth as positive and reduces concern over a domestic recession in 2023. Additionally, lower inflation expectations in 2023 is expected to be one of the catalysts that drive the domestic purchasing power, in addition to the continuing trade surplus. Therefore, we agree with Bank Indonesia's stance of "pro-stabilization and pro-growth" to encourage a lower domestic cost of funds as we anticipate the BI7DRRR pivot to occur by the end of 2023.

Download