5.4% Q4 growth for Indonesia, but anchors still dragging, says ANZ

JAKARTA - At 5.04% y/y, Indonesia’s Q4 GDP growth has come in on the firmer side of consensus expectations. “At the margin,” ANZ Bank says, “Indonesia has ended 2015 on a less-weak footing than we previously thought. We would hesitate to use the expression ‘stronger footing’ as we have yet to be convinced that the major expenditure categories we need to see bounce to pull growth recovery onto a more stable trajectory are indeed sustainably recovering.”

ANZ says private consumption and public investment will be the keys to Indonesia’s 2016 outlook. “If neither of these enters a durable recovery in H1 2016, then the probability of Indonesia moving sustainably above what we perceive to be a 4.75%-5.25% growth funk still seems rather low at this time.”
Indonesia’s GDP figures lack the granularity of quarterly seasonal adjustment, the bank says. “Our initial negative reaction to the data based on the headline y/y figures – in itself a rudimentary form of seasonal adjustment – has been somewhat muted after seasonally adjusting the quarterly figures ourselves.
“Following this exercise, we find that Gross Fixed Capital Formation (GFCF) is recovering on a quarterly seasonally adjusted basis with that pace of recovery picking up in Q4, but the overall pace of investment growth remains below that pace seen in late 2012. Still, this is the most encouraging data point we have seen on investment (33% of GDP) in nearly three years.
Private consumption remains stuck in a multi-year rut, ANZ says. “At 55% of GDP, the inability of private consumption to muster any momentum will remain the principal anchor on the Indonesian recovery.
“(And) while we are encouraged by the increase in investment, we still note that current levels are hardly sufficient to meet targets for public works or to stabilise domestic demand.  More importantly, we note that the renewed drop in commodity prices will present additional headwinds to growth momentum. 
“We remain of the view that Bank Indonesia has a further 75bps of easing to do in this cycle. Though fiscal policy appears to be gaining traction, a more activist monetary policy stance should be adopted by BI to turn what appears to be a nascent stabilisation in growth into a fledgling recovery in H1 2016.” www.live.anz.com (ATI).