Macroscope

Macroscope
Economic | 07 May
Research | 07 2019
May 2019

1Q19 GDP: Investment Cools Down, Expect the Engine to Heat Up in 2Q19
Easing economic growth in 1Q19. Indonesia’s 1Q19 real GDP slipped to 5.07% YoY from
Economic Forecasts 5.18% in 4Q18, a level slightly below our expectation at 5.12% (vs. consensus: 5.20%). In
summary, government expenditure, non-profit institutions spending, and net exports
2017 2018 2019F
recorded improvement, while slowdown occurred in private consumption and gross fixed
Real GDP (%)* 5.1 5.17 5.22
capital formation. Of those last two, the GFCF was the main source of slowdown.
GDP/capita (US$)* 3,827 3,945 4,137
Inflation (%) 3.61 3.13 3.80
Private consumption was flat. We set a bull’s eye forecast for private consumption at
7-DRRR 4.25 6.00 5.75
5.01% from 5.08% in the prior quarter. Looking through its component, ‘transportation
CAD/GDP (%)* -1.7 -2.98 -2.6
and communication’ growth fell the most (4.91% from 6.14%). Re-iterating our view,
Exc. Rate (Rp/US avg.) 13,398 14,267 14,450 although government’s social spending was large in 1Q19, the non-social spending
realization was relatively low which is also followed by the quiet business activities pre-
election.

GFCF drop amid the end of capex cycle. The slowdown on the investment side (5.03%
from 6.01% in 4Q18) was not surprising as it was partly intentionally fabricated. As
policymakers have been more selective on infrastructure projects which led to capital
goods import decrease, the growth of ‘machine and equipment’ component also slowed
to 8.4% YoY from 12.3% in 4Q18. Buildings and structures, the component with the
largest share in the GFCF has maintained its growth at 5.5% from 5.0% in the prior
quarter. Additionally, our thesis saying that the capital expenditure cycle has ended
especially in the mining sector was supported by the fact that ‘vehicles’ and ‘other
equipment’ components undermined GFCF the most, with both experiencing contraction
in 1Q19 (-7.4% and -6.8% respectively) from positive growth in 4Q18 (8.4% and 0.3%).

Government spending, net exports, and non-profit institutions improved. As

predicted, government spending improved, as the total of personnel, material, and social
assistance in the budget accelerated to 22% YoY in 1Q19 from 15.7% in 4Q18. Net exports
also ticked up (93.7% YoY from -100.6% in the prior quarter) most notably because of
deeper imports contraction rather than exports. Lastly, non-profit institution spending
accelerated to 16.9% from 10.8% in 4Q18, as election-related activity might be near its
peak during the quarter; however its contribution to the overall 1Q19 GDP has been
Leo Putera Rinaldy relatively small at 0.2ppt, hence the figure could not pull up the GDP figure by much.
Chief Economist
+6221 5296 9406
Main industries growth eased, information and communication advanced.
leo.rinaldy@mandirisek.co.id
Agriculture and manufacturing recorded slower growth in 1Q19. Especially for
agriculture, food crops registered a negative contribution to the overall economic growth
Aziza Nabila Amani at -0.2ppt (vs. 0.08ppt in 4Q18); our preliminary prediction on this is that it was partly on
Economist behalf of the shift of harvest peak to Apr19 instead of Mar19. We also observed
+6221 5296 9651 information and communication sector printed significant growth increase (9.0% from
aziza.amani@mandirisek.co.id 7.2%) which was supported by election-related activities, in our opinion.

Our view: economic growth trend should pick up in 2Q19. We view private
consumption to gain strength in 2Q19, given Rupiah liquidity condition should improve
and government’s non-social spending should rise; both should be the consumption
engine for middle-income consumers. Additionally, the rise of civil servants’ salary by 5%
this year, which will be disbursed accumulatively in Apr19, should support the purchasing
power and raise consumption in the quarter when Eid occurs. For the overall year, we

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Macroscope | 07 May 2019

expect the gradual shift from public investment to private investment to occur post-
election (likely in 2H19) along with the government’s incentives, although the smooth
transition of this shift will also depend on the global situation and exchange rate stability.
Therefore, on the policy side, we do not expect 1Q19 economic growth result would push
Bank Indonesia to cut rate soon as the policy rate is aimed to manage the balance of
payment surplus. We maintain our 5.22% economic growth forecast for FY19.

EXHIBIT 1. GDP SUMMARY

1Q19
%, YoY 4Q18
Mandiri Consensus Actual
GDP 5.18 5.12 5.12 5.07
Household consumption 5.08 5.01 - 5.01
Non-profit institutions consumption 10.79 8.50 - 16.93
Government expenditures 4.56 6.50 - 5.21
Gross fixed capital formation 6.01 5.83 - 5.03
Exports of goods and services 4.33 6.00 - -2.08
Imports of goods and services 7.10 7.10 - -7.75

Sources: CEIC, Mandiri Sekuritas estimate, Bloomberg

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 Macroscope | 07 May 2019

MACROECONOMIC INDICATORS AND FORECAST

2013 2014 2015 2016 2017 2018 2019F 2020F

National Account
Real GDP (% yoy) 5.6 5.0 4.8 5.0 5.07 5.17 5.22 5.37
Domestic Demand (% yoy) 5.5 4.6 5.0 4.4 5.12 5.60
Real Consumption: Private (% yoy) 5.4 5.1 5.0 5.0 4.95 5.05 5.10 5.23
Real Consumption: Non-Profit Institution (% yoy) 8.2 12.4 -0.6 6.6 6.9 9.1
Real Consumption: Government (% yoy) 6.9 2.0 5.4 (0.1) 2.14 4.80 4.50 4.00
Real Gross Fixed Capital Formation (% yoy) 5.3 4.1 5.1 4.5 6.15 6.67 7.10 7.50
Real Net Exports (% yoy) 130.8 (27.5) -
Real Exports (% yoy) 4.2 1.0 (2.0) (1.7) 9.09 6.48 6.80 6.70
Real Imports (% yoy) 1.9 2.2 (5.8) (2.3) 8.06 12.0 7.00 7.10
GDP (Rp tn) - nominal 9,525 10,543 11,541 12,407.0 13,588.8 14,837.4 16,108.1 17,572.0
GDP (US$ bn) - nominal 911 888 861.9 932 1,015 1,042 1,111
GDP per capita (US$) - nominal 3,662 3,520 3,377 3,589 3,847 3,945 4,137

External Sector
Exports (% yoy) - Merchandise (2.8) (3.7) (15.4) (3.2) 17.0 7.0 3.1 1.6
Imports (% yoy) - Merchandise (1.4) (4.5) (19.7) (4.6) 16.0 20.7 (1.3) 2.5
Trade Balance (US$ bn) 5.8 6.9 13.3 15.4 18.8 -0.43 7.5 6.0
Current Account (% of GDP) (3.2) (3.0) (2.0) (1.8) (1.6) (2.98) (2.6) (2.9)
Current Account (US$ bn) (29.1) (26.2) (17.6) (16.3) (16.2) (31.1) (29.9) (33.8)
Rp/US$ (period average) 10,452 11,878 13,458 13,308 13,398 14,267 14,450
Rp/US$ (year end) 12,189 12,440 13,795 13,436 13,548 14,481 14,548

Other
BI rate (% period average) 6.48 7.54 7.50 5.75 4.75 4.75
BI rate (% year end) 7.50 7.75 7.50
BI 7 days reverse repo rate (% year end) 4.75 4.25 6.00 5.75 5.75
Headline Inflation (% yoy, period average) 6.4 6.4 6.4 3.5 3.81 3.2 3.4 3.7
Headline Inflation (% yoy, year end) 8.08 8.36 3.35 3.00 3.61 3.13 3.8 3.7
S&P's Rating - FCY BB+ BB+ BB+ BB+ BBB- BBB- BBB- BB-
S&P's Rating - LCY BBB- BBB- BBB- BBB- BBB- BBB- BBB- BB-
Sources: CEIC, Mandiri Sekuritas estimate

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ECONOMIC AND FIXED INCOME RESEARCH TEAM

Handy Yunianto Leo Putera Rinaldy

Head of Fixed Income Research Chief Economist
handy.yunianto@mandirisek.co.id leo.rinaldy@mandirisek.co.id
+62 21 5296 9568 +62 21 5296 9406

Ali Hasanudin Aziza Nabila Amani

Credit Analyst Economist
ali.hasanudin@mandirisek.co.id aziza.amani@mandirisek.co.id
+6221 5296 9629 +6221 5296 9651

Teddy Hariyanto
Credit Analyst
teddy.hariyanto@mandirisek.co.id
+62 21 5296 9408

Yudistira Yudadisastra
Credit Analyst
yudistira@mandirisek.co.id
+62 21 5296 9698

Ariestya Putri Adhzani

Research Assistant
ariestya.adhzani@mandirisek.co.id
+62 21 5296 9522

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