INDONESIA GDP RELEASE: Q1 20181  Indonesia’s economy expanded 5.1 percent yoy in Q1, marginally slower than 5.2 percent growth in Q4 2017.  Gross fixed capital formation growth accelerated to 7.9 percent yoy in Q1 from 7.3 percent in Q4 2017 – the fastest pace of growth since Q4 2012.  Private consumption growth remained flat at 5.0 percent yoy, and government consumption growth moderated to 2.7 percent in Q1.  Exports growth eased in Q1 to 6.2 percent, while imports growth accelerated to 12.7 percent.  On the production side, the manufacturing sector expanded 4.5 percent, once again contributed the most to headline GDP growth. The Indonesian economy grew 5.1 percent yoy in Q1, a tick slower that the 5.2 percent in Q4 2017, and also below consensus forecasts of 5.2 percent. Overall, the Q1 outcome was broadly in line with the pattern seen in previous quarters with robust investment growth leading to high imports growth and the other components of GDP remaining mostly stable. The marginal moderation in GDP growth was, in part, due to net exports continuing to drag on growth as imports grew faster than exports, as well as easing government consumption growth (Figure 1). Imports growth, more than doubled that of exports, reflected the acceleration in investment growth that was the most rapid since Q4 2012. Private consumption growth was stable, while government consumption growth moderated from its higher growth in Q4 which partly resulted from base effects. On the production side, the manufacturing sector contributed the most to growth (1.0 pp in Q1) as it did in Q4 2018. Construction and the transport and communication sectors, however, saw the fastest growth (Figure 2). On a gross value-added basis (GVA), the economy accelerated to 4.9 percent. Fixed investment growth accelerated again, supporting GDP growth. Gross fixed capital formation once again was the economy’s bright spot, growing 7.9 percent in Q1, up from 7.3 percent in Q4, mainly driven by continued acceleration in machine and equipment investment (Figure 3). Machine and equipment investment saw the fastest growth, rising from 22.3 percent in Q4 2017 to 23.7 percent. Buildings and structures investment growth eased from 6.7 percent in Q4 2017 to 6.2 percent in Q1 2018. However, it remained the main contributor to overall investment growth (4.7 pp). Investment in vehicles rebounded from a contraction in Q4 2017 to reach 14.4 percent in Q1. Private consumption growth was stable in Q1 at 5.0 percent. Consumption of food and beverages was once again the largest contributor to private consumption growth with 1.8 pp, but the hotel and restaurant sector grew the fastest at 5.6 percent. High-frequency indicators for consumption pointed to a mixed picture in Q1 with growth of motorcycle sales and retail sales ticking up marginally, but consumer confidence and passenger car sales growth dipping a little (Figure 4). Government consumption growth moderated to 2.7 percent yoy from 3.8 percent in Q4 2017. The moderation was partly due to one-off higher growth in the previous quarter, resulting from base effects associated with public expenditure cuts in Q4 2016. Import growth accelerated while export growth slowed in Q1 from Q4 2017. Net exports continued to be a drag on overall GDP growth, as imports growth more than doubled that of exports. Imports growth accelerated to 12.7 percent in Q1, compared to 11.8 percent in Q4 2017, partly due to strong import-intensive investments. Meanwhile, exports growth eased to 6.2 percent in Q1 from Q4 2017. The moderation in exports growth was mainly due to a contraction in oil and gas exports, only partially offset by a strengthening in services 1 Prepared by Dhruv Sharma, cleared by Frederico Gil Sander and Derek Chen. exports. Exports growth was also slower due to high base effects from 2017. The imports growth outcome was driven by a pick up in non-oil and gas imports (21.3 percent in Q1, up from 13.1 percent in Q4 2017) as well as a strong increase in services imports (9.9 percent in Q1 from 4.6 percent in Q4 2017). The increases in these two categories more than offset the contraction oil and gas imports (14.7 percent in Q1 down from 12.8 percent in Q4 2017). The outcome for oil and gas imports was the weakest in at least the past 7 years. On the production side, the manufacturing sector remained the largest contributor to growth (1.0pp in Q1) but construction and the transport and communication sectors were the main growth drivers. Growth in these two sectors was 7.4 percent in Q1 and 8.6 percent in Q1, respectively, while manufacturing expanded 4.5 percent. Mining and quarrying once again contributed the least to overall GDP growth (0.06 pp) in Q1, and growing just 0.7 percent. Meanwhile, the agriculture sector reversed the downward growth trajectory seen in 2017 and accelerated to 3.2 percent in Q1. Figure 1: Net exports were a drag on GDP Figure 2: Manufacturing remained the main contributor growth in Q1 to growth in Q1 (contributions to growth yoy, percentage points) (contributions to growth yoy, percentage points) Change in inventories Tax-subsidy Services Stat. discrepancy* Financial services Transport & comm 10 Net exports Trade, hotel & rest Construction Investment Electricty, gas & water Manufacturing Government consumption Mining & quarrying Agriculture 8 Private consumption GDP 7 Total GDP 6 6 5 4 4 2 3 0 2 1 -2 0 -4 -1 Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Mar-15 Mar-16 Mar-17 Mar-18 Source: BPS; World Bank staff calculations Source: BPS; World Bank staff calculations Figure 3: Machinery and equipment investment Figure 4: Leading indicators pointed consumption drove fixed capital formation softness in Q1 (contributions to growth yoy, percentage points) (yoy, percent/3mma yoy, percent, LHS; consumer confidence index; RHS) Intellectual Property Cultivated Bio. Res. 40 140 Other Equipments Vehicles Consumer Machine & Equipment Buildings & Structures Passenger Car Sales Confidence Index Investment 30 130 8 20 120 7 6 10 Retail Sales 110 5 Index 4 0 100 3 2 -10 90 1 Motorcycle sales 0 -20 80 -1 -2 Mar-15 Sep-16 Mar-18 Source: BPS; World Bank staff calculations Source: BI; World Bank staff calculations Note: Retail sales index in yoy percent terms; vehicle sales in 3-month moving average (mma) percent yoy terms. Figure 5: Moderation in exports growth came Figure 6: Imports growth accelerated due to an increase mainly from lower non-oil and gas exports growth in non-oil and gas imports (contributions to growth yoy, percentage points) (contributions to growth yoy, percentage points) 20 Services 20.0 Services Goods: Oil & Gas Goods: Oil & Gas 15 Goods: Non-Oil & Gas 15.0 Goods: Non-Oil & Gas Export of Goods and Services Import of Goods and Services 10 10.0 5 5.0 0 0.0 -5 -5.0 -10 -10.0 Mar-15 Sep-16 Mar-18 Mar-15 Sep-16 Mar-18 Source: BPS; World Bank staff calculations Source: BPS; World Bank staff calculations Table 1. Indonesia: GDP Growth yoy, percent contributions to yoy growth, percentage points Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 2017 GDP 5 5 5 5.2 5.1 5.1 By Expenditure Consumption 4.8 4.1 4.8 4.8 4.8 5 3 2.6 3 3.2 3 2.9 Private cons. 5 5 4.9 5 5 2.1 2.8 2.7 2.7 2.8 2.8 2.8 Govt. cons. 2.7 -1.9 3.5 3.8 2.7 6.2 0.2 -0.2 0.3 0.4 0.2 0.2 Gross fixed capital formation 4.8 5.3 7.1 7.3 7.9 8.1 1.5 1.7 2.2 2.4 2.5 2 Exports 8.4 2.8 17 8.5 6.2 9.1 1.8 0.6 3.3 1.8 1.4 1.9 Imports 4.8 0.2 15.5 11.8 12.7 8.1 0.9 0 2.7 2.4 2.5 1.6 Change in inventories 13.9 0.8 -51.7 -15.4 13.8 -13.5 0.3 0 -1.3 0.2 0.4 -0.2 By Industry Agriculture 7.1 3.2 2.8 2.2 3.1 3.8 0.9 0.4 0.4 0.2 0.4 0.5 Mining & quarrying -1.2 2.1 1.8 0.1 0.7 0.7 -0.1 0.2 0.1 0 0.1 0.1 Manufacturing 4.3 3.5 4.8 4.5 4.5 4.3 0.9 0.8 1 0.9 1.0 0.9 Electricity, gas and water 1.8 -2.1 4.9 2.5 3.3 1.8 0 0 0.1 0 0.0 0 Construction 6 6.9 7 7.2 7.4 6.8 0.6 0.7 0.7 0.7 0.7 0.7 Trade, hotel & restaurant 4.7 3.9 5.3 4.7 5.1 4.6 0.8 0.6 0.9 0.8 0.8 0.8 Transport & communication 9.4 10.1 8.8 8.6 8.6 9.2 0.8 0.9 0.8 0.8 0.8 0.8 Financial services 5.4 5.6 5.9 4.9 4.7 5.4 0.5 0.5 0.5 0.4 0.4 0.5 Other services 3.7 2.6 4 6.8 6 4.3 0.3 0.2 0.4 0.7 0.5 0.4 Taxes & subsidies 9.4 24.4 7.1 14 9.3 13.4 0.3 0.8 0.3 0.6 0.3 0.5