- Indonesia’s growth hit a speedbump in 3Q24.
- Pickup in investment spending and inventory restocking offset slower consumption.
- We maintain our 5% forecast for 2024 and factor in a small improvement next year.
- The new cabinet lends credence to policy continuity.
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Summary
3Q growth moderates
Indonesia’s 3Q24 growth rose by a slower 4.95% yoy, close to our estimate at 4.9% and below market consensus. We had expected slight moderation in 2H pace, post the election-related boost and lift from religious events in 1H (Indonesia: Steady growth beat, pockets of vulnerability). On sequential basis, the pace was in line with past trends for the third quarter.
Outlook
High frequency indicators, including sentiments, retail sales and consumption loan growth point to tepid demand into late part of the year. Data from the statistics agency also showed a fall in the proportion of population in the middle class, instead slipping into the ’aspiring middle class’ segment. Investment demand – domestic and FDI – remains firm, especially in the base metal processing industries. Capacity utilisation rates slipped in second half of the year but stayed above 70% except mining. With another sub-5% growth number likely in 4Q24, we maintain our full-year growth forecast at 5%.
New cabinet affirms policy continuity.
Indonesia’s new President Prabowo Subianto retained many of the previous ministers in his new cabinet (Indonesia: Rate pause, new government). The ‘Red-and-white’ cabinet comprise of 48 ministers (table in appendix), 56 deputy ministers and 5 ministerial level officials, marking the largest cabinet since mid-1960s. Besides moving the Finance Ministry directly under the President, several other ministries have either broken down as unique entities or have been dissolved. Political parties across the coalition were accommodated with an attempt also to give representation to smaller outfits even as they were not a part of the coalition.
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