Indonesia Macro Update - GDP Growth 06 Aug 2024
KBVS MACRO UPDATE
Tuesday, 6 August 2024
Government Expenditure Continues to Drive Economic Growth in 2Q24
Indonesia's economy in 2Q24 grew by 3.79% QoQ or 5.05% YoY. We believe this growth is also driven by monthly deflation in the last two months of 2Q24, with a deflation rate of 0.03% MoM in May ‘24 and 0.08% MoM in Jun ‘24.
On a quarterly basis, from the production side, the Agriculture, Forestry, and Fisheries sector grew significantly by 23.43% QoQ. This led to an increase in the GDP distribution from the Agriculture, Forestry, and Fisheries sector to 13.36% of GDP (Prev: 11.78% of GDP). Meanwhile, on the expenditure side, Government Consumption Expenditure was the main driver, increasing by 19.58% QoQ.
Consequently, we still expect economic growth to remain steady between 5.0% YoY - 5.1% YoY in the upcoming 3Q24 and 4Q24. This is anticipated to act as a cushion ahead of a) the anticipated larger interest rate cuts from advanced economies (notably the US, EU, and China), b) expectations of real sector investments shifting from China to Indonesia, and c) hope this will drive an increase in investment, which previously stood at -4.84% QoQ in 1Q24 and -0.66% QoQ in 2Q24. However, on the other hand, we are concerned that: a) the massive government spending that drove growth in 1H24 may decrease in 2H24, b) concerns about geopolitical tensions, and c) weakening labor conditions in the US are feared to potentially dampen the domestic economy's boost from net exports (especially from the US).
Regards,
Fikri C Permana - KBVS Research