Lacklustre growth in Indonesia to prompt further rate cut, says ANZ

August 7, 2017

JAKARTA – ANZ Bank is forecasting a further interest rate cuts of 25 basis points in the fourth quarter of 2017 after growth in Indonesia remained static at 5.1% in the second quarter.  It says economic activity was primarily weighed down by a contraction in Government expenditure, while growth in household consumption was also lacklustre.

“This sluggish growth momentum combined with benign core inflation is likely to result in renewed monetary easing,” it says.

Firmer growth in investment (which contributed 1.7ppts for the second quarter), along with continued expansion in household consumption (+2.7ppts) and net exports (+0.6ppt), mitigated the contraction in Government consumption (-0.2ppt), it added.

“Looking ahead, considering an absence of support from commodity prices, it is unlikely that q/q seasonally adjusted growth will exceed 1.4% in both Q3 and Q4 2017. This translates into full year 2017 growth of 5.2%.

“At a component level, we see household consumption growth remaining modest. The upturn in consumer sentiment has yet to translate into realised spending. Retail sales and other consumption indicators such as motor vehicle sales remain stagnant.

“The same is true for investment. Although investment indicators, including commercial vehicle sales, capital goods imports, and cement sales have accelerated, much of the improvement has been on account of low base effects.” (ATI).