Investment and government spending support Indonesia 3Q GDP

Are the government's efforts paying off?

Indonesia’s GDP growth stabilized in the third quarter, posting a gain of +4.73% yoy.

According to a research note from Bank of America Merrill Lynch, this is a minimal acceleration in growth; second quarter GDP had expanded +4.67% from a year ago. Economic growth has dialed down markedly from the 6% average recorded over 2005-2013, largely due to weakness in the commodities space, a gradual slowdown in household consumption, and slow realization of government investment.

However, the report also said that details are encouraging, and that investment and government spending strengthening, offsetting weak exports GDP components.

These paint a more encouraging picture and suggest that the government’s efforts to boost spending and infrastructure investment may finally be paying off, said the report.

Here's more from Bank of America Merrill Lynch:

State budget and capital expenditure disbursements accelerated over 3Q. Today’s GDP data reveals that strength in investment and government spending are more than offsetting the weakness in exports. Investment growth accelerated to +4.62% yoy in 3Q, vs. +3.6% in 2Q and is the quickest pace of expansion in six quarters.

Government spending accelerated strongly, growing +6.6% in 3Q (vs. +2.3% in 2Q). We estimate that these two components contributed 2.1% pts to overall growth in 3Q, versus 1.4% pts in 2Q. The export contraction deepened in 3Q to -0.7% yoy (vs. -0.1% in 2Q), hurt by weaker goods exports.

Exports subtracted about 0.2% pts from overall growth. Meanwhile household consumption was largely unchanged, growing +4.96% in 3Q. Imports contracted 6.1% in 3Q, slightly slower compared to the previous quarter.

GDP details on the supply side also point to acceleration in infrastructure investment. Construction growth strengthened to +6.8% yoy in 3Q, from +5.4% in 2Q. Services (+5.2%) and manufacturing (+4.3%) accelerated slightly. Agriculture grew at a slower pace (+3.2%), while the mining sector continued to contract (-5.6%).

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