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According to ANZ analysts, Indonesia’s economy has lost some momentum as Q2 2019 growth came in at 5.05% y/y, the softest in two years, while weak commodity prices are posing a challenge.

Key Quotes

“More policy support is on the way”¦

  • The government’s FY2020 budget has penciled in record spending of IDR2,529trn (14.5% of GDP)
  • Bank Indonesia lowered its reserve requirement ratio in June and kicked off its rate-cutting cycle in July

“¦but current account trends limit the fiscal and monetary policy space

  • The national savings rate is falling, while investment efficiency is waning
  • Large interest payments on the stock of FDI and portfolio liabilities are a structural challenge
  • Rising dependence on foreign flows”

“Higher FDI inflows are key to breaking growth constraint.”