GDP growth reaches highest level since 2Q23
Statistics Indonesia (BPS) reported a robust GDP growth rate of 5.11% YoY for 1Q24, marking the highest pace since the 2Q23. This figure surpassed both our projected estimate and the consensus, which stood at 5.09% YoY and 5.07% YoY, respectively. On the production side, the Public Administration, Defence, and Social Security sector demonstrated the highest growth, expanding from 1.61% YoY in 4Q23 to 18.88% YoY in 1Q24. Meanwhile, on the expenditure side, Nonprofit Institutions Serving Households Final Consumption Expenditure (LNPRT) showed the highest growth, surging from 18.11% YoY in 4Q23 to 24.29% YoY in 1Q24. Furthermore, nominal and real GDP reached Rp5,288.3 tn and Rp3,112.9 tn, respectively. This economic growth can be attributed to various factors, including the general election, social assistance programs to mitigate the impact of El Niño, and Ramadan festivities. Looking ahead to FY24, there are potential global risks that could impact economic conditions. These include potential increases in energy prices and rising logistical expenses due to escalating geopolitical tension. Additionally, prolonged high interest rates could potentially decelerate economic growth. However, there are also factors that could support growth, such as increased household consumption and government spending associated with the general election. Furthermore, the inauguration of the president and vice president is expected to reduce uncertainty, potentially leading to an increase in investment. Taking these factors into account, we forecast the Indonesian economy to grow by 5.1% YoY in FY24.
Household consumption rebounds to 4.91% YoY
Household consumption continued to be the dominant contributor to the Indonesia economy, accounting for 54.93% of GDP in 1Q24, higher than 52.89% in the previous quarter. Furthermore, household consumption rebounded by 4.91% YoY in 1Q24 after experiencing declines over two consecutive quarters. We attribute this acceleration to the general election and Ramadan. Additionally, Value Added Tax (PPN) and Luxury Goods Sales Tax (PPnBM) grew by 2.57% YoY to Rp155.79 tn in 1Q24. Looking ahead, we expect growth to continue expanding in 2Q24, driven by managed inflation rates and Eid-al-Fitr festivities. Furthermore, the yearly inflation rate fell from 3.05% YoY in Mar-23 to 3.00% YoY in Apr-24. However, high-interest rates and Rupiah depreciation potentially could reduce household consumption. The BI rate increased to 6.25%, hitting the highest level since 2016. Meanwhile, the Rupiah has depreciated beyond Rp16,000/USD since 16 April.
Government spending meets record high since 2Q06
Government spending surged to 19.90% YoY in 1Q24, marking the highest growth rate since 2Q06. Furthermore, government spending accounted for 19.90% of the 1Q24 GDP. Meanwhile, state expenditure saw an 18% YoY increase to Rp611.9 tn in 1Q24, representing 18.4% of the 2024 target. Breaking it down, spending by Ministries/Agencies (K/L) grew by 33.1% YoY to Rp222.2 tn in 1Q24, while non-K/L spending rose by 13.9% YoY to Rp205 tn. Moreover, transfer payments to regions (TKD) increased by 7.6% YoY to Rp184.3 tn. This surge in government spending can be attributed to several factors: the general election in February, social assistance to mitigate the impact of El Niño, and higher energy subsidy payments. Additionally, Indonesia Crude Price rose by 12.32% YoY to USD83.78/bbl. Looking ahead, we anticipate a deceleration in government spending in 2Q24 due to normalization after the general election. However, the potential impact of the 13th salary for public servants in June could bolster government spending.
Investment decelerates during the general election period
As the second-largest contributor, accounting for 29.31% of GDP, gross fixed capital formation (GFCF) or investment growth decelerated to 3.79% YoY in 1Q24 (vs. 5.02% YoY in 4Q23). We attribute this deceleration to a cautious "wait-and-see" approach by investors during the general election period. On the other hand, investment realization accelerated by 22.1% YoY to Rp401.5 tn in 1Q24 (vs. 16.2% YoY in 4Q23). Breaking it down, Foreign Direct Investment (FDI) grew by 15.5% YoY to Rp204.4 tn, constituting 50.9% of the total investment, while Domestic Direct Investment (DDI) increased by 29.7% YoY to Rp197.1 tn (49.1% of the total investment). We attribute the rise in investment realization to downstream policy, contributing 18.9% to the total investment realization in 1Q24. Looking ahead, investment is expected to pick up in 2024, primarily driven by increased political certainty after the general election. Additionally, Prabowo, as the elected president, campaigned to continue downstream projects.
Exports weigh on GDP growth
Exports and imports accounted for 21.37% and 19.77% of 1Q24 GDP, respectively. Export growth slowed to 0.50% YoY in 1Q24 (vs. 1.64% YoY in 4Q23). Meanwhile, import growth accelerated to 1.77% YoY in 1Q24 (vs. -0.15% YoY in 4Q23). Looking ahead, we expect exports to decline further due to falling commodity prices on the back of weakening global demand. Conversely, imports are expected to perform better as the domestic economy remains resilient. Taking these factors into account, we forecast a wider current account (CA) deficit of -0.4 % of GDP in 2024, compared to -0.1 % of GDP in 2023.
