Here's the real trouble behind Indonesia's 5.7% drop in import growth

Capital goods imports have been declining.

According to DBS, Indonesia's August imports data was a little worrying not because import growth came in well below expectations at-5.7% YoY. A sustained decline in imports of capital goods was the key concern. 

Here's more:

It suggests that the moderation in domestic investment is happening at a pace that is much faster than expected. Imports of capital goods have declined by 18.5% YoY in the January-August period.

Our GDP growth forecast of 5.8% this year is based on total investment growth staying above 5.0%. Even if we expect overall import growth to bounce back, further decline in imports of capital goods will put our GDP forecast at risk.

Looking at the data breakdown provides a more encouraging picture though. General machinery make up the bulk ofimported capital goods and demand in this category is still growing rather modestly. This is especially true when compared to the demand of specialized machinery.

No doubt, a weakening IDR is likely to have weighed on investments. The economy is still growing quite modestly, even if GDP growth may come in below trend this year.

The underlying support to the economy comes from the favourable demographics and this is a trend that maintains our positive outlook for the long-term.