ECONOMIC UPDATE - What to Expect
Focus on Domestic Quarterly Data
Market to focus on Indonesia’s GDP and CAD data release
This week will be the release time of Indonesia’s quarterly data: GDP and current account deficit (CAD). These two data will be the main attention as it will show Indonesia macroeconomic performance amid global slowdown. Besides, US 4Q18 GDP and Dec PCE inflation data release will be delayed to next week because of government shutdown.
4Q18 GDP should be supported by domestic demand
Statistics Office (BPS) is scheduled to released 4Q18 and FY 2018 GDP on Wednesday (Feb 6). We believe the 4Q18 GDP will be driven by domestic side as global demand weakened. Investment growth will remain high at around 6.7% YoY due to public investment. Cement consumption remained robust at 4.7% YoY which makes us believe that building investment growth will remain above 5%. Meanwhile, the slowing down capital goods import (4Q18: 6.7% YoY vs 3Q18: 14.5% YoY) may give some burden to equipment investment but the growth will remain double digit. On consumption side, the growth will be highly depended on food and beverage and also leisure activities (i.e. restaurant and hotel sector). Retail sales growth showed stagnant trend in November at 3.42% YoY (vs end of 3Q18 at 4.79% YoY). There should not be a surprise on consumption segment that we predict to grow 5.06% YoY in 4Q18. The main problem of 4Q18 GDP is located on external trade. On the monthly trade data, BPS recorded export to have negative growth of -1.04% YoY in 4Q18. Import growth is recorded at 12.1% in 4Q18 even though we already saw the sharp decline trend in December. All in all, we expect GDP growth in 4Q18 at 5.13% YoY (-1.73% QoQ), making FY 2018 GDP growth figure at 5.16% YoY.
CAD remained above 3% of GDP
Bank Indonesia (BI) is expected to release 4Q18 balance of payment data (BoP), including the current account deficit (CAD) data, on Feb 8. The spotlight of 4Q18 will remain on the goods trade balance as the export growth enter negative territory because of subdue global demand. As we have mentioned before, BPS monthly data denoted 4Q18 had deficit of USD -4.9 bn. However, the goods import in BI’s data should be lower as the freight and insurance cost of goods import will be moved to service trade part. However, we still expect goods trade balance to register deficit of USD -1.9 bn (vs 3Q18 USD -0.4 bn). Meanwhile, we see the deficit pressure of service trade balance will decrease in 4Q18. Higher growth of tourist arrival in 4Q18 at 14..4% YoY (vs 3Q18 at 10.2% YoY) will help to boost service export. On the other side, lower goods import growth should be followed by lower freight cost that led to declining growth of service import growth. On primary income side, the 4th quarter should have seasonally lower deficit due to less burden of dividend and interest payment. We expect CAD to reach USD -8,383 mn or 3.17% of GDP.
4Q18 BoP to have surplus, January forex reserves
Although 4Q18 CAD will remain high, we still expect 4Q18 BoP to have surplus. Even Bank Indonesia (BI) gave guidance of USD 5 bn BoP surplus in 4Q18. The capital inflow (esp portfolio investment) has been significantly improving since November 2018 due to 1) lower oil price; 2) more dovish Fed; 3) implementation of DNDF. According to Bloomberg, the capital inflow in equity market reached USD 30.67 mn and inflow to government bonds reached USD 2,6 bn. The capital inflow gave some boost to Indonesia’s foreign reserve that reached USD 120.6 bn or around 6bn higher than end of 3Q18 position. We see the trend will still continue in January this year as we expect another USD 2-3 bn addition to forex reserve. We expect 4Q18 BoP will post USD 3-5 bn surplus.