Indonesia Data As Expected, EM Currencies At Risk

As expected, GDP for Indonesia, one of the world’s most populous nations, came is softer year-over-year.

The uptick in third-quarter household spending (+5.01 percent y/y) was “underwhelming,” despite events like the Asian Games, the Ramadan festival and somewhat subdued inflation prints. In addition, the outlook for household spending remains weak despite the boost from the IMF meetings in October, as the country continues to be plagued by natural disasters and higher interest rates constraining credit demand. On the other hand, overall consumption growth at 5.23 percent y/y in Q3 was supported by strong growth in government spending at 6.28 percent y/y, the highest since 2015.

Investment spending saw an increase, up nearly 7 percent in the third quarter after dipping below 6 percent in the second quarter. Import curbs on machinery and equipment may present some downside for investment spending into end-2018, but this will be offset by an increase in election-driven spending after the parliament approved a record spending budget for 2019. Indonesia’s trade outlook, meanwhile, remains benign given the escalating U.S.-China trade war concerns.

“In our view, the extent of a slowdown in growth remains within expectations,” Charu Chanana, deputy head of Asia research with Continuum Economics wrote in a note to clients on November 7th. “Therefore, we expect Bank Indonesia to focus on stability rather than growth.”

More rate hikes in the United States remain in the pipeline as the Fed stays on course this year and into 2019, keeping Asian currencies on the backfoot. It is important to note that the third-quarter current account deficit—scheduled for release on November 9—will likely cross the key 3 percent of GDP mark, posing further risk to the rupiah amid global tightening risks.

Photo Credit: The Jakarta Post