MFM, Jakarta, GDP briefing note                                                          August 6, 2015




                                    INDONESIA GDP RELEASE: Q2 2015

HIGHLIGHTS

 In Q2 2015, GDP grew at 4.7 percent yoy, the same rate as in the first quarter and in line with
    World Bank staff and market analyst expectations.
 Fixed investment remained the main driver of the economic slowdown, but private consumption
    expenditure grew at a moderate 4.7 percent yoy for a second quarter.
 In line with weak domestic demand, imports contracted significantly, thus supporting growth.
    Exports remained a drag on economic activity, albeit to a lesser extent than in previous quarters.
 The economic stimulus from higher public infrastructure spending is expected only towards the
    end of 2015 with limited impact on growth this year.


Figure 1: The growth moderation continued in Q2           Figure 2: …on account of declining spending on
2015, with investment weakening further…                  machinery, equipment and vehicles
(contributions to growth, percent yoy)                    (contributions to growth, percent yoy)
                                 Stat. discrepancy*              Intelectual property      Cultivated bio.resouces
                                 Net exports                     Other equipment           Vehicles
                                 Investment                      Machinery & equipment     Construction
                                 Government consumption          Total investment
   10                            Private consumption
                                                              11
                                 GDP
    8                                                         10
                                                               9
    6                                                          8
                                                               7
    4
                                                               6
    2                                                          5
                                                               4
    0                                                          3
                                                               2
    -2                                                         1
                                                               0
    -4                                                        -1
     Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15          Jun-12        Jun-13      Jun-14        Jun-15

Note: Stat. discrepancy includes change in inventories.   Source: BPS
Source: BPS


In the second quarter, real GDP grew at 4.7 percent yoy, the same pace as in Q1 2015 and in line with
World Bank and Consensus expectations (Figure 1). The main reason for the Q2 weakness in economic
activity remained fixed investment which increased by 3.2 percent yoy, down from 4.3 percent yoy in the
previous quarter. Spending on machinery and equipment and vehicles contracted by 5.6 and 7.5 percent yoy,
respectively, maintaining the negative growth contribution of these investment categories in most quarters
since 2013. Construction growth, still the main driver of fixed investment, decelerated to 4.8 percent yoy,
from 5.5 percent in Q1 2015.
Private consumption expenditure grew at the same moderate pace of 4.7 percent yoy recorded in the
first quarter. This compares with an average growth rate of 5.4 percent yoy in 2012-2014 and corroborates
the narrative that the GDP growth moderation and slower job creation since 2012 have translated into
weaker consumer sentiment and lower household spending this year. Government consumption expenditure
grew by 2.3 percent yoy, down from 2.7 percent yoy in the first quarter.




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MFM, Jakarta, GDP briefing note                                                          August 6, 2015


Net exports contributed 1.6 percentage points to growth in Q1 2015, but this if fully attributed to the
decline in imports, by 6.8 percent yoy, the weakest import data release since 2009. The decrease in
import volumes was due to non-oil and gas goods and services, while oil and gas import volumes increased.
According to monthly customs trade data, a decrease in (nominal) imports was observed across all three
categories – consumer goods, capital goods and raw materials. On the other hand, exports were almost flat in
year-on-year terms, recording a decline of 0.1 percent. In the second quarter, exports were supported only by
the resumption of copper shipments by Freeport in May, after the company obtained an export license from
the Government.
From the production perspective, mining and quarrying contributed negatively to GDP growth in
the second quarter, while the contributions of construction and services declined. Mining and
quarrying output contracted by 5.9 percent yoy, contributing -0.5 percentage points to GDP growth.
Agriculture and manufacturing sector growth picked up slightly from Q1 2015, contributing 0.9 and 1.0
percentage points to GDP growth, respectively.
Taking the latest data into account, the July 2015 World Bank staff projections for 2015 GDP and
private consumption growth, both at 4.7 percent, are likely to remain broadly unchanged. Most high-
frequency indicators continue to signal economic weakness and credit conditions remain relatively tight. In
addition, there is limited scope for Bank Indonesia to loosen monetary policy, given sticky inflation (above 7
percent in recent months), persistent external vulnerabilities, and uncertainty with respect to US Federal
Reserve actions in the near term. Finally, lower revenues and execution delays in public infrastructure
spending mean that the expected increase in investment would be smaller than planned and come only
towards the end of this year, with limited impact on GDP growth in 2015.




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