Indonesia’s economy projected to grow 5.2% in 2016

Thanks to investments and government spending.

It has been noted that Indonesia's real GDP growth will continue to pick up pace in 2016, underpinned by strong investment and government spending.

According to a research note from BMI Research, further, the government's accommodative fiscal and monetary stance should help to mitigate external headwinds, informing our forecast for Indonesia's real GDP to expand by 5.2% in 2016.

In line with the report’s expectations, Indonesia's economy picked up pace on the back of stronger government and capital spending, and posted a real GDP growth of 5.0% y-o-y in Q415.

Here’s more from BMI Research:

This brings full-year real GDP expansion to 4.8% in 2015, which is consistent with our forecast. Previously we mentioned that the Indonesian economy had stabilised. Over the coming quarters, we believe that the government's accommodative fiscal and monetary stance will likely underpin growth in the economy, informing our forecast for Indonesia's real GDP growth to pick up slightly to 5.2% in 2016. Recent strength in financial market indicators is a positive sign in this regard.

Private consumption growth in Indonesia stagnated at 4.9% y-o-y in Q415, similar to the 5.0% registered in Q315. Although we see limited potential for a significant pick-up in private consumption growth over the coming quarters owing to still-high interest rates and volatile inflation, the stabilisation of the rupiah over the near-term, and the central bank's supportive monetary stance should be positive for consumer confidence. Indeed, according to the Bank Indonesia Consumer Confidence Index, Indonesians are becoming more optimistic about the economy, with the indicator's reading improving to 112.6 in January 2016, a five-month high.

Indonesia's gross fixed capital formation accelerated to 6.9% y-o-y in Q415, as compared with 4.8% in Q315, on the back of an acceleration in government infrastructure spending and an improvement in investment procedures. According to the Indonesia Investment Coordinating Board (BKPM), total investment realisation in Q415 was up 20.8% y-o-y, while the full-year figure improved by 17.8%. We expect this positive momentum to be sustained over the mediumterm as the government remains committed to boosting infrastructure spending and streamlining bureaucracy red tape.

Although the Jakarta terror attacks in January could have a negative impact on investor sentiment, we believe that the economic and financial market impact will be largely mitigated by the government's accommodative fiscal and monetary support, and is unlikely to derail the country's economic recovery over the coming year.