15 Feb 2018 - 0:55
Indonesia’s growth to pick up on higher spending
DOHA: Driven by an increased social transfers, easier monetary policy and an economic package that will help stimulate private investment, Indonesia’s real GDP should rise to 5.3 percent in 2018, QNB Group noted in its ‘Indonesia Economic Insight 2017’ report.
In 2019, the QNB expects Indonesia’s growth to slow slightly to 5.2 percent as the boost to consumption fades and as monetary policy turns neutral from supportive.
The current account deficit is expected to widen in 2018 as demand volume and prices of some of Indonesia’s largest exports fall. Imports should remain flat as a percentage of GDP as higher imports of consumer goods and oil are offset by lower imports of raw materials and capital goods as a result of lower infrastructure spending.
In 2019, the current account deficit should remain unchanged as weaker exports are offset by lower imports due to the fading impact of social transfers and lower infrastructure spending.
Capital inflows should remain sufficient to cover the current account deficit although the capital and financial account as a share of GDP should fall over 2018-19 as stimulus is scaled back from global central banks.
The currency is expected to weaken slightly, at round 1% each year in 2018-19. International reserves can continue to build gradually and import cover should remain comfortable at over seven months throughout 2018-19.
The budget deficit is expected to narrow over 2018-19 as the government cuts back on spending. The spending composition is expected to shift from infrastructure to higher social spending as the government increases spending on cash and food benefits to lower-income households.
The 2018 budget includes lower spending on infrastructure, regional transfers and subsidies, with decreased non-energy subsidies more than offsetting higher energy subsidies.
In 2019, the government is expected to continue fiscal consolidation with spending focused towards social transfers at the expense of infrastructure, particularly as 2019 is an election year.
Loan growth should pick up in 2018 on higher consumption and easier monetary policy before slowing in 2019 with slower headline growth, while deposit growth should slow in line with lower domestic nominal GDP growth Overall, deposit growth should remain higher than loan growth, leading to a gradual decrease in the loan-to-deposit ratio and comfortable liquidity.