Indonesia’s GDP grew by 5.70% yoy or 1.90% qoq in 1Q10, in line with our expectations but slightly below consensus forecasts of 5.79%. The economy grew faster in 1Q10, compared with 5.43% yoy in the last quarter of 2009, suggesting economic recovery is gathering more steam.
Stronger investment (7.9% yoy) and external demand recovery (net exports grew 10.2% yoy) were the main contributors to the economic growth in 1Q10, driven by global recovery and the return of investor appetite to invest in emerging economies. Meanwhile, private consumption growth was quite solid (3.9% yoy vs. 4.0% in 4Q09), considering less government fiscal stimulus and higher base effect during the election period in 1Q09.
On sectoral basis, untradeable sector growth, such as communications, trade, and financial services remained robust. Global demand recovery and rising investment activity have also jacked up demand for manufacturing goods particularly transportation and machinery equipment. Agriculture growth, on the other hand softened, as it grew 2.9 % yoy, which may be related to lower food production.
Besides improved global economic backdrop, we believe domestic demand will likely remain solid and positive for the economy, backed by faster loan growth, well anchored expected inflation and stable interest rates. However, we do not see any exceptional strength evidenced in 1Q10 GDP figure that warrants faster interest rate hike. Overall, we think Indonesia’s GDP will grow 5.8% yoy and 6.3% yoy in 2010 and 2011, with interest rate hike is expected in 4Q10 by a total 50bps to level 7%.
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