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Indonesia Country Risk Report Q3 2018

Indonesia Country Risk Report Q3 2018

The Indonesian economy cooled slightly in Q118, expanding by 5.1% y-o-y, versus 5.2% y-o-y in Q417. However, we are maintain-ing our forecasts for growth to pick up to 5.3% in 2018 and 5.4% in 2019 as we expect the economy to benefit from a recovery in private consumption, government expenditure, and resilient investment growth. That said, the recovery would be somewhat dampened by rising political risks, with the elections just round the corner.

The Indonesian government's plan to curb price increases of non-subsidised fuels and electricity tariffs is likely to be negative for the business environment and may further discourage private investment into the energy sector. Moreover, this may reverse the fiscal reform progress and see energy subsidies as a share of total expenditure increase over the course of 2018 and 2019, eating into development spending.

We believe that the IDR is likely to remain range-bound over the near-term as BI has shown that it is willing and able to support the currency through a combination of monetary tightening and selling of foreign reserves. Over the longer term, the rupiah is likely to weaken gradually against the USD due to higher inflation, but stronger real GDP growth should support the unit's outperformance in total return terms.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Maintaining Our Expectations For A Modest Recovery
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: MAIN EXPORT AND IMPORT PARTNERS
TABLE: MAIN EXPORTS AND IMPORTS
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
Hawkish Shift Suggests Another 25bps Hike Likely
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Populist Energy Policies To Weigh On Investment And Growth
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Currency Forecast
IDR: Short-Term Respite But Long-Term Weakness
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
A Bullish Long-Term Growth Story
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Facing A Second Wave Of Terror Threats
TABLE: POLITICAL OVERVIEW
TABLE: KEY TERROR ATTACKS
Long-Term Political Outlook
Outlook Improved, But Uncertainty Lingers
Chapter 4: Operational Risk
Operational Risk
TABLE: OPERATIONAL RISK
Business Crime
TABLE: BUSINESS RESPONSE TO SECURITY RISKS
Education
TABLE: INDONESIA AND OECD AVERAGE STUDENT PERFORMANCE SCORES, 2015
Chapter 5: BMI Global Macro Outlook
Key Divergences Emerging In World Economy
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
TABLE: INDONESIA – MACROECONOMIC DATA & FORECASTS

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