Overview

Indonesia’s third-quarter GDP growth slowed down marginally to a 1-year low of 4.95%, compared to 5.05% in the second quarter. This was slightly below the forecasted growth of 5.05%. Despite stable domestic demand, a surge in imports overshadowed the pickup in exports, dragging net exports down.

Investment and Government Spending

Investment and government spending saw a notable increase, although household consumption growth slowed down slightly. Household consumption grew by 4.91% compared to 4.93% in the second quarter. However, the labor market showed signs of weakness, with a rise in the underemployment rate to 8% from 6.7% and a decline in the proportion of full-time workers to a 3-year low of 68.1%.

Household Consumption Breakdown

The growth in household consumption was marked by mixed performances across various sectors:

• Restaurant & Hotel: +6.6% (compared to +6.8% in 2Q)
• Transport & Communication: +6.5% (compared to +6.8% in 2Q)
• Household Equipment: +3.7% (compared to +4.4% in 2Q)
• Food & Beverages: +4.3% (compared to +4.1% in 2Q)
• Apparel, Footwear & Maintenance: +3.4% (compared to +1.7% in 2Q)
• Health & Education: +4.2% (compared to +3.7% in 2Q)

Government Consumption and Capital Formation

Government consumption growth rose significantly to 4.6% from 1.4% in the second quarter. Gross fixed capital formation growth reached a 1-year high of 5.15%, driven by increases in buildings & structures (+6%) and machinery & equipment (+11.2%). However, the vehicles sector continued to slump, with a decline of -15.3%.

Net Exports Analysis

Net exports of goods and services subtracted -0.08% from GDP growth, marking a drag for the first time since June 2023. Export growth picked up to 9.1%, led by services (+17.6%) and non-oil & gas goods (+9%). However, imports jumped by 11.5%, driven by non-oil & gas imports (+14.9%). Monthly trade data indicated a strong rebound in imports of capital goods (+10.3%) and intermediate goods (+11%).

Industry Performance

The performance across industries was mixed:

• Manufacturing: +4.7% (compared to +3.9% in 2Q)
• Mining: +3.5% (compared to +3.2% in 2Q)
• Construction: +7.5% (compared to +7.3% in 2Q)
• Real Estate: +2.3% (compared to +2.2% in 2Q)
• Public Administration: +3.9% (compared to +2.8% in 2Q)
• Education: +2.5% (compared to +2.4% in 2Q)

In contrast, slowdowns were observed in wholesale & retail trade, transportation & storage, accommodation & food services, infocomm, finance, and health & social work.

Future Outlook and Monetary Policy

Maybank Research maintains its GDP growth forecast at 5.1% for 2024 and 5.2% for 2025. Growth averaged 5.03% in the year to date and is expected to strengthen to around 5.1% in the fourth quarter. Catalysts include government measures, looser monetary policy, and spending by political parties during the regional election season.

Bank Indonesia is anticipated to cut its policy rate by 25 basis points in November to support growth amid subdued inflation, with further cuts expected to bring the policy rate to 5.5% by year-end and 4.75% by the end of 2025.

Macroeconomic Indicators

Labor Market and Employment

Indonesia’s labor force rose by 3.0% to 152 million people as of August 2024. The participation rate increased to 70.6%, while the unemployment rate remained low at 4.9%. However, the share of full-time workers fell to a 3-year low, and the underemployment rate rose to 8.0%.

Conclusion

While Indonesia’s GDP growth saw a minor slowdown in the third quarter of 2024, the outlook remains positive with expected strengthening in the fourth quarter. The government’s proactive measures and Bank Indonesia’s monetary policy adjustments are likely to support this growth trajectory. However, challenges in the labor market and import surges remain areas to watch.