There was a possibility that Indonesia GDP growth might have improved in 2Q14 but...

The external front still the main drag.

Export growth in Indonesia was rather poor in 2Q14 while the recovery in investment growth is yet to take place, and GDP growth might have inched up slightly in 2Q14 due to the delayed election factor this year, but it is likely to see it circa 5.5% YoY rather than our earlier estimate of 5.7%.

According to a research note from DBS Group Research, the main drag still comes from the external front. Export growth has been disappointing in 2Q14, at around -4.5% YoY, as compared to our earlier estimate of -1.4%.

The state of the global economy is partly a factor here but impact from the raw mineral export ban has also been greater than expected.

Contribution from net exports to overall GDP growth might have returned to the positive though, given that import growth has also been disappointing in the period.

Here’s more from DBS Group Research:

Looking forward, a stronger pick-up in investment remains our key call for 2H14. While more data is warranted, signs have been encouraging.

Despite concerns over political uncertainties, total investment commitments reached another record high in 2Q14.

The fall in imports of capital goods has also been arrested, although another bout of volatility in the rupiah during May-June might have affected sentiment slightly.

Manufacturing PMI is at record-high. And a sustained 7-8% growth in industrial production remains a positive indicator for GDP growth outlook ahead.

 Nevertheless, a disappointing 1H14 means we may need to re-look into our 2014 GDP growth forecast.

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A stronger 2H is still in the offing, but any support from external demand is likely to be limited. The new government may provide some fiscal boost but nothing significant is likely in the near-term given limitations from the ballooning budget deficit.

More significant impact from fiscal policy may only be visible in 2015. Stay tuned.