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n line with our expectations (exhibit 1), Indonesia booked an all time high direct investment realization of Rp 81.8 trillion (US$8.5 billion) in the third quarter of this year (3Q12), increasing 25 percent year on year (y-y) on the back of higher domestic direct investment (DDI).

Solid 3Q12 direct investments translated to higher investment figures in the first nine months of this year (9M12) that reached Rp 230 trillion, up 26.9 percent y-y.

We note that 3Q12 DDI realization posted significant growth of 32.6 percent y-y to Rp 25.2 trillion, across manufacturing, agriculture, construction, electricity, gas and water-supply sectors (exhibit 2).

Meanwhile, 3Q12 foreign direct investment (FDI) booked the highest realization record ever at Rp 56.6 trillion, growing 21.9 percent y-y, in spite of sluggish recoveries still weighing on global economic outlook.

We note that Singapore, Japan, South Korea and United Kingdom were the biggest foreign direct investors in 9M12 (exhibit 3), while manufacturing, mining, transportation and telecommunications were the main drivers of FDI by sector (exhibit 2).

On the back of continuing investments coming from both domestic and overseas sources, the Investment Coordinating Board (BKPM) expects Indonesia’s 2012 investment will exceed the government’s current target of Rp 283.5 trillion.

Consistent with BKPM’s view, we also see that investments will remain solid going forward. This is mainly due to the advantage of Indonesia’s large and young population base, attracting foreign investors due to labor supply and simultaneously a potential sizeable market for domestic consumption. At this stage, we expect Indonesia’s 2012 investment to grow 17 percent y-y to $32.5 billion, growing to $38 billion in 2013.

Strong investments have offset the impact of weakening exports, cementing Indonesia’s solid GDP growth ahead. Coupled with manageable inflationary pressure that has preserved our domestic consumption to further drive the Indonesia’s economy, we expect in the second half, this year (2H12) GDP growth to remain solid.

At this stage of the cycle, we revise up our 2012 GDP growth estimate from 6.1 percent previously to 6.3 percent. However, as global uncertainties will remain a drag on our external trades next year, our 2013 GDP growth forecast remains at 6.4 percent (exhibit 4).