Consumption growth will accelerate in 2017 as an improving economy helps to better conditions in the labour market and rising wages spur spending growth. We continue to expect the Indonesian economy to do well into 2018 as the government pursues positive reforms to reduce red tape and improve the business environment, leading to a stronger GDP performance. This is reflected in the consumer confidence ratings, which reached all-time highs in July 2017, indicating a boom in consumer spending should be forthcoming over the rest of the year.
The BMI Country Risk team is forecasting private consumption real growth of 5.0% in 2017, static since 2016. The Indonesian economy has faced headwinds in recent quarters due to a ban on exports in the mining sector. This was lifted in January 2017, which has boosted the economic outlook for the country; as positive wage growth supports higher rates of private consumption. Poor performance in the key agricultural sector (which is also a major source of informal employment at low wages) will sustain elevated unemployment levels over 2017. Accordingly, we updated our forecast for Indonesia's real GDP growth to accelerate to 5.1% in 2017 and 5.3% in 2018 from 5.0% in 2016.