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Analysis: 2015 GDP growth: Fuel price hostage
On the back of sluggish export performance, Indonesiaâs GDP growth in the third quarter of this year (Q3 2014) continued to decelerate to 5
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n the back of sluggish export performance, Indonesia's GDP growth in the third quarter of this year (Q3 2014) continued to decelerate to 5.01 percent year-on-year (y-o-y), (Q2 2014: 5.12 percent y-o-y; Q3 2014: 2.96 percent quarter to quarter), its lowest level since Q3 2009 and below our expectations (Table 2).
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Amid the austerity program implemented in Q2 2014, government expenditure realization bounced back in Q3 2014, reaching 4.37 percent y-o-y (Q2 2014: down 0.71 percent), supported by material spending that usually starts in H2.
On the flip side, Q3 2014 private consumption growth was slightly down, at 5.44 percent y-o-y (Q2 2014: up 5.59 percent), as shown in Table 3, despite domestic demand effects from politically related activities, the fasting month and Lebaran festivities.
Additionally, while Q3 2014 direct investment realization recorded by the Investment Coordinating Board (BKPM) reached a new record high, the investment component of GDP growth dropped to 4.02 percent y-o-y (Q2 2014: up 4.53 percent).
On the external front, a fragile global economic recovery resulted in Q3 2014 real export growth of only 0.70 percent y-o-y (Q2 2014: down 0.76 percent), while imports remained weak, reaching -3.63 percent y-o-y (Q2 2014: down 5.05 percent).
On the industry side, manufacturing, transportation, telecommunication, construction, retail trades and financial business were the main sectors behind the lower Q3 2014 GDP growth (Table 6).
In the short term, we are of the view that Q4 2014 GDP will hinge on the government's plan to raise fuel prices in November. However, there has been no indication on the magnitude of the hike.
Assuming the fuel price hike will be Rp 2,000 (16 US cents) per liter, we expect lower purchasing power would lower Q4 2014 GDP growth to below the 5 percent y-o-y level (Table 5). At this stage, we have lowered our 2014 full-year GDP growth target to 5.12 percent from 5.2 percent.
Additionally, we have also slightly cut the 2015 GDP growth estimate from 5.1 to 5.08 percent.
In addition, our sensitivity analysis reveals that, given the same scenario, a low level of Q4 2014 GDP would translate to a 2014 full-year level of 5.08 percent from our new baseline level of 5.12 percent.
Furthermore, coupled with relatively weak exports, we believe 2015 GDP growth could fall to 5.02 percent, lower than our baseline level of 5.08 percent (Table 4). We will review our GDP growth targets once the government announces its planned price hike implementation.
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Economist Research Department, Bahana Securities.
