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Arjen van Dijkhuizen, senior economist at ABN AMRO, points out that over the past years, Indonesia’s growth rate has been remarkably stable around 5%, notwithstanding shocks such as the escalation of the US-China conflict and EM market turmoil in 2018.

Key Quotes

“In Q3 2019, growth came in at 5.0% yoy, marginally below the pace reached in previous quarters. Government spending was the biggest drag on growth in Q3, slowing from 8.3% yoy in Q2 to 1.0% in Q3. That reflected a natural correction to a pre-election spending surge. Private consumption slowed from 5.2% yoy in Q2 to 5.0% in Q3.”

“Consumer confidence has fallen since May and growth of retail sales has clearly come down in recent months. Fixed investment slowed from 5% yoy in Q3 to 4.2% in Q2. Indonesia’s manufacturing PMI has dropped sharply over the past months, to a four-year low of 47.7 in October. A similar drop was visible in 2015, but back than that did not go hand in hand with a material slowdown in GDP growth.”

“Looking ahead, we expect economic growth to stay close to 5% in 2020, assuming that the monetary policy easing implemented this year will support domestic demand.”