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Bahana-Daiwa outlook on Indonesia economy for 1Q16


JAKARTA  –  Daiwa-Bahana economist Fakhrul Fulvian provides latest review on Indonesia’s economy. He said private consumption on the rise, while investment was still subdued on lower machinery investments.

Followings are the highlights:

Private consumption on the rise

Private consumption up: Indonesia’s 1Q16 GDP growth of 4.92% y-y was below our and consensus expectations of 5.07% y-y. On a q-q basis, 1Q16 GDP dropped 0.34% due to continued seasonality of low government expenditure and investment growth. All business segments supported economic growth except mining, which dropped 0.66% y-y, reflecting continued low commodities prices.

Financial institutions and insurance grew the most at 9.10% y-y. Expenditure-wise, 1Q16 performance was helped by consumption, which slightly increased to 4.94% y-y (4Q15: 4.92%, 1Q15: 5.01%), contributed by health and education consumption at 5.91% y-y (4Q15: 6.49%; 1Q15: 6.05%).

However, government expenditure and investment growth decreased to 2.93% y-y (4Q15: 7.31%; 1Q15: 2.91%) and 5.57% y-y (4Q15: 6.90%; 1Q15: 4.63%). Net exports reported low growth of 1.80% y-y (4Q15: 78.41%; 1Q15: 32.80%), although export and import y-y growth improved from the prior quarter (exports – 1Q16: -3.88%; 4Q15: -6.44%; imports – 1Q16: -4.24%; 4Q15: -8.05%).

Details are as follows:

Private consumption seeing an upturn: 

Following weakness since 2011, private consumption finally edged up to 4.94% y-y, supported by the transportation and communication sectors at 5.44% y-y and 0.01% q-q (4Q15: 4.70% y-y) as well as restaurants and hotels at 5.53% y-y and -1.64% q-q (4Q15: 5.46%). We believe the relaxation of the government ban on civil servant spending and the lower fuel price already has lifted consumption and look for an overall upturn. The speed of recovery should depend on the pace and transmission of monetary easing, the continuation of low inflation and job creation.

Recently, the government stated that the unemployment rate had fallen to 5.5% as of February 2016 (February 2015: 5.81%), indicating better conditions for supply-side dynamics.

Investment subdued on lower machinery investment: 

Investment recorded lower growth at 5.57% y-y and -5.75% q-q (4Q15: 6.90% y-y), dragged down by negative growth in machinery investment at -6.78% y-y and -11.04% q-q (4Q15: +3.75% y-y). On a more positive note, other investment rose 26.29% y-y and 6.81% q-q (4Q15: 7.80% y-y), supported by metals-related investment, which could support infrastructure spending.

On seasonality, we did not find a significant change in investment spending patterns, which leads us to expect investment to pick up in 2H16. 

Government expenditure still seasonally weak: 

Contrary to our and market expectations, government expenditure growth was subdued at 2.93% y-y and -49.45% q-q (4Q15: +7.31% y-y), even though we acknowledge that the realization of the total year forecast is already improving. At this point, we do not see a significant change in the immediate effect of government expenditure acceleration to GDP. Hence, we continue to expect a government expenditure recovery to only occur in 2Q16 and 4Q16, following seasonal patterns (*)


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Source: The Insiderstories
Bahana-Daiwa outlook on Indonesia economy for 1Q16

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