Indonesia to hold rates steady in fourth quarter, says Natixis

JAKARTA – Global asset manager Natixis is forecasting that GDP in Indonesia will reach 5.1% in 2017, slightly better than subdued H1 2017 – and it does not expect a further interest rate cut for the balance of the year.

“Higher fiscal spending and an improvement of the credit cycle, thanks to better exports and lower interest rates, will support growth in H2,” Natixis says.

“Bank Indonesia has been impatient with low growth, especially with limited fiscal space, and delivered another 25bps cut. We do not think there is more space to ease.”

Natixis says that since 2013, the average growth rate in Indonesia has been 5%, and it was 5% in the first two quarters of growth for 2017.

“The downturn of the commodity cycle has left a prolonged impact on the economy, as both exports have not recovered fully and domestic demand has remained sluggish, dragged down by weak domestic investment,” Natixis says.

“How to escape this 5% growth rate is a question that has plagued the central bank and the fiscal office.

“As we have argued, and as confirmed by the FY2018 budget, Indonesia has limited room to boost growth via public investment. A choice was made to prioritise fiscal sustainability and keep the 3% fiscal deficit limit.

“The budget calls for a 2.9% fiscal deficit in 2017 and a narrower gap of 2.2% in 2018, suggesting very little boost from public policy.” www.natixis.com (ATI).