ab6 February 2024Global Research and Evidence LabAPAC Economic PerspectivesIndonesia: Still a commodities driven economyGDP growth slows to 5% in 2023, but still beats expectationsIndonesia's economy grew by 5.05% in 2023, marking a 0.3ppt deceleration from 5.3% in 2022, slightly better than UBS and consensus expectations (5.0%). For Q4 itself, Indonesia's GDP grew by 5.04% y/y, exceeding UBS and consensus expectations (UBSe: 4.8% Cons: 5.0%). There was a major swing from inventories, which added 1.4ppt to growth in Q4 (Q3: 0.2ppt). Domestic demand slowed, in both private consumption (down 0.3ppt to 4.8% y/y) and investment (down 0.8ppt to 5.0% y/y). Net exports' contribution to growth remained slightly positive in Q4 (+0.4ppt). Factoring in UBS' expectations for weaker global growth, and few positive catalysts for domestic demand, we retain our 2024 GDP growth forecast at 4.8%.Weak consumption momentum in H2'23; full year 4.9% growth is below trendPrivate consumption growth decelerated to 4.8% y/y in Q4 from 5.1% in Q3. Although the aggregate slowdown was mild, food consumption (2.6% y/y in Q4 vs 4.0% y/y in Q3) was especially weak last year, partly due to high food inflation, which would have a regressive impact on lower income households. Sequentially, private consumption grew by less than 2% annualized in H2 2023 (Q4: +0.5% q/q sa, Q3: +0.2% q/q sa). Full year consumption growth was just 4.9%, the weakest since 2015, apart from the pandemic years (2020,2021). BI's consumer confidence index dropped in Q4 across all income segments. Particularly lower-income consumers have shown the weakest confidence.In Q4, equipment investment slowed while commodity exports picked upGross fixed capital formation shrank by 0.3% q/q sa (5.0% y/y), led by lower transport and machinery investment. However, buildings GFCF remained strong (+0.6% q/q sa, +6.4% y/y). Relatedly, the construction sector grew by 2.4% q/q sa (7.7% y/y), a relative outperformer, whilst the manufacturing sector slowed, decelerating to 0.8% q/q sa (4.0% y/y). Real goods exports clocked a small positive 0.4% y/y growth after two quarters of contraction. On a sequential basis, export volumes rose 6.9% q/q sa (vs 1.6% q/q sa in Q3), on stronger coal and nickel exports (mainly to China). Imports were only slightly better (+1.5% q/q sa, -0.3% y/y vs -8.1%y/y in Q3).Downstreaming's clear boost to exports, but not much impact on consumptionThe nickel strongholds of North Maluku and Central Sulawesi recorded staggering growth of 20.4% and 11.9% respectively in 2023, on the back of strong net exports. Through 2021 to early 2022, growth in these two regions was driven by GFCF, followed by net exports from late 2022 onwards. Rapid GDP growth has not yet broadened out to consumption. Whilst real household consumption has risen slightly faster in these two regions, it has been fairly m...
