Analysis: Q2 GDP growth: Beating expectations
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Indonesia’s Gross Domestic Product (GDP) growth in the second quarter (Q2), this year unexpectedly grew 6.4 percent year-on-year (2.8 percent quarter-on-quarter) compared to the previous quarter of 6.3 percent on the back of solid domestic demand and strong investment spending.
Q212 y-y GDP growth was higher than our and consensus’ expectations of 6.1 percent (exhibit 1) and stronger than most of Indonesia’s peers in the region (exhibit 2) following China.
On the back of low interest rates and high business confidence, investment expenditure continued to be robust at 12.3 percent y-y (exhibit 3), becoming the main GDP growth engine while domestic consumption also remained solid, growing at 5.0 percent y-y, buoyed by increased Q212 consumer tendency index (CTI) during school holidays and the advent of fasting month in June (exhibit 4).
On the flip side, exports remained weak as expected with Q212 growth at 1.9 percent y-y whereas spending on imports continued to rise 10.9 percent y-y stemming from solid domestic demand for raw materials and capital goods as reflected in higher business tendency index (BTI). Negative export development is not a surprise given weakness in global economies.
By sector, retail and construction were the main Q212 GDP growth drivers (exhibit 5), having experienced escalating y-y growth relative to Q112 levels.
At this stage of the cycle, we maintain our 2012 GDP growth target at 6.1 percent, as we expect continuing external trade deficit due to sluggish global economies to bring export spending to decline on a y-y basis in H212. Nevertheless, we expect support from domestic demand and rising investments to shield Indonesia against external volatilities, allowing for GDP growth to remain resilient at above the 6 percent level.
Stronger than expected Q212 GDP growth will ease pressure on the central bank to have to lower its benchmark rate at today’s Bank Indonesia’s Board of Governors’ meeting. Looking ahead, we expect BI to hold its current benchmark rate at 5.75 percent for the rest of the year and into 2013.
The writer is an economist at PT Bahana Securities