Economic growth ticks down in Q3 but remains robust

GDP growth surprises markets on the downside: Economic momentum softened in the third quarter, with GDP expanding 4.9% year on year (Q2: +5.0% yoy) and marking the lowest reading in a year. The downtick was slightly below market expectations and was largely due to calendar effects—such as the Idhul Fitri celebrations, which fell in Q2 this year—plus weak net exports amid declining external demand for commodities and strong domestic activity fanning imports. Meanwhile, quarter-on-quarter GDP growth slowed to 1.5% in Q3 from 3.8% in Q2.

Net exports chiefly drag on momentum: Domestically, private consumption growth was steady at Q2’s 4.9% yoy in Q3. More positively, public consumption growth accelerated to 4.6% in Q3 (Q2: +1.4% yoy), likely due to the transition to a new government and upcoming regional elections in November. Fixed investment growth also picked up in Q3, to 5.1%, following the 4.4% expansion logged in the prior quarter, boosted by infrastructure projects and capital investment. On the external front, net exports detracted 0.1 percentage points from overall growth in Q3, contrasting Q2’s 0.4 percentage point contribution. Exports of goods and services growth sped up to 9.1% in Q3 (Q2: +8.2% yoy), while imports of goods and services growth picked up to 11.5% (Q2: +7.8% yoy).

Robust GDP growth expected ahead: Going forward, the Indonesian economy will continue to expand at a robust pace, hovering near Q3’s expansion. As a result, 2025’s growth will broadly match 2024’s projection, as stronger rises in private spending, fixed investment and exports roughly offset a weaker public consumption increase. Higher-than-expected fiscal spending under President Subianto is a key upside risk, while protectionist policies under U.S. President Trump are a downside risk.

Panelist insight: Nomura analysts Euben Paracuelles and Nabila Amani commented on the outlook: “Our forecast pencils in Q4 GDP growth at a relatively stable 5.0% y-o-y, owing to more limited boost to domestic demand from the regional elections. Household spending growth is also likely to remain subdued. […] We also expect investment spending growth to stabilize rather than pick-up further, owing to some uncertainty around the political transition, weak external demand (particularly from China) and low commodity prices.” United Overseas Bank analyst Enrico Tanuwidjaja was more optimistic: “We expect Indonesia’s economic growth to rebound slightly higher in 4Q24 on the back of likely faster and bigger government spending that may continue to support and boost domestic demand. We are also likely seeing steady growth to continue in the coming quarters that are likely to be driven by the hastening of fiscal spending, on top of higher investment spending (driven by FDI), and steady consumption.”

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