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 PoliticsFacing 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