GDP growth in line with our expectations
Statistics Indonesia (BPS) reported that Indonesia’s GDP grew by 5.02% YoY in 4Q24 and 5.03% YoY for FY24, in line with our projections but slightly above consensus estimates (4.96% YoY for 4Q24 and 5.01% YoY for FY24). This marks an acceleration from the previous quarter’s 4.95% YoY but a slight deceleration from 5.05% YoY in FY23. On the production side, the Other Services sector recorded the highest growth, expanding 11.36% YoY in 4Q24 and 9.80% YoY in FY24. On the expenditure side, Nonprofit Institutions Serving Households’ Final Consumption Expenditure (PK-LNPRT) saw the highest cumulative growth, rising 12.48% YoY in FY24, while exports posted the strongest quarterly growth at 7.63% YoY in 4Q24. In nominal terms, GDP reached Rp22,139 tn in FY24, compared to a real GDP of Rp12,920 tn. Looking ahead, geopolitical tensions and trade wars could disrupt trade, while lower expectations for FFR rate cuts due to persistent inflation may slow global recovery. However, several factors could support growth, including higher household consumption and increased government spending on populist programs, such as the free nutritious lunch initiative. Furthermore, direct investment also is expected to increase driven by political stability and the continued progress of the downstream industry program. Considering these factors, we maintain our forecast of 5.1% YoY GDP growth for FY25.
Household consumption hits highest growth rate in 4Q24
Household consumption remained the largest contributor to Indonesia’s economy, accounting for 53.71% of GDP in 4Q24 and 54.04% of GDP in FY24. It also accelerated to 4.98% YoY in 4Q24, the highest growth rate of the year, driven by regional elections (Pilkada), Christmas festivities, and the student holiday season. Cumulatively, household consumption grew by 4.94% YoY in FY24 (vs. 4.82% YoY in FY23). We attribute the increase in household consumption this year to election-related spending and lower food prices (deflation in volatile food price from May to October 2024). Looking ahead, we expect household consumption growth to continue rising in 1Q25, supported by seasonal factors such as Chinese New Year, Ramadan, and Eid al-Fitr celebrations.
Government spending jumps 6.61% YoY in FY24 due to elections
Government spending accounted for 9.96% of GDP in 4Q24 and 7.73% of GDP in FY24. On a quarterly basis, government spending slightly decelerated to 4.17% YoY in 4Q24, compared to 4.62% YoY in 3Q24. However, government spending increased by 6.61% YoY in FY24, up from 2.95% YoY in FY23, driven by general and regional elections as well as social assistance programs to mitigate the impact of El Niño. The fiscal deficit for 2024 was recorded at 2.3% of GDP, higher than the 1.7% in FY23. Looking ahead, we expect the fiscal deficit to widen in 2025, driven by increased government spending on populist programs such as free lunch initiatives. Additionally, the fiscal deficit policy serves as a shock absorber amid the global uncertainty prevailing this year. However, Presidential Instruction Number 1 of 2025, which focuses on spending efficiency, may help alleviate some pressure on the fiscal deficit. Considering all factors, we project the fiscal deficit to be 2.7% of GDP in 2025.
Investment growth sustains despite political year
As the second-largest contributor to GDP, gross fixed capital formation (GFCF) or investment accounted for 30.12% of GDP in 4Q24 and 29.15% of GDP in FY24. GCFC growth stood at 5.03% YoY in 4Q24, slightly lower than the 5.15% YoY in 3Q24. However, On a cumulative basis, GFCF accelerated to 4.61% YoY in FY24 (vs. 4.40% YoY in FY23) despite the political year. We attribute this increase to Prabowo-Gibran's victory, which has not led to greater political uncertainty, as they are expected to continue previous policies, thereby maintaining investor confidence. Meanwhile, investment realization surged by 23.8% YoY in 4Q24 and 21.0% YoY in FY24, (vs. 15.2% YoY in 3Q23 and 17.5% YoY in FY23). Total investment realization reached Rp1,714 tn, surpassing the Rp1,650 tn target for 2024. Breaking it down, Foreign Direct Investment (FDI) grew by 21.0% YoY to Rp900.2 tn, accounting for 52.5% of total investment, while Domestic Direct Investment (DDI) rose by 20.6% YoY to Rp814.0 tn, representing 47.5%. Looking ahead, we expect investment realization to reach its 2025 target of Rp1,905.6 tn, supported by political stability and the ongoing expansion of the downstream industry program.
Exports rise, but imports surge higher
Exports contributed 23.26% of GDP in 4Q24 and 22.18% in FY24. Export growth slowed to 7.63% YoY in 4Q24 (vs. 9.08% YoY in 3Q24). However, on a full-year basis, exports grew by 6.51% YoY in FY24, a significant increase from 1.32% YoY in FY23. We attribute this higher cumulative export growth to rising commodity prices, particularly for CPO. Meanwhile, imports accounted for 21.28% of GDP in 4Q24 and 20.39% in FY24. Import growth also decelerated to 10.36% YoY in 4Q24 (vs. 11.5% YoY in 3Q24). However, on an annual basis, imports surged by 7.95% YoY in FY24, a sharp rebound from -1.65% YoY in FY23. We attribute this increase to higher imports of goods from China, driven by oversupply and weaker domestic demand in China. Looking ahead, Global economic uncertainty continues to pose challenges for Indonesia’s export performance in 2025. Heightened geopolitical tensions in the Middle East, China’s weakening economic outlook, and the expectation of tighter protectionist policies under Trump could disrupt export performance and limit Indonesia’s trade surplus going forward. Considering these factors, we continue to uphold our forecast that the Current Account (CA) may show a slight deficit of -0.5% of GDP in 2024, and -0.7% of GDP in 2025.
