Low inflation opened room for BI cutting rate for first time since 2017 to support growth.
Based on the usage, raw materials / intermediary goods became the main laggards as its import slumped.
Trade (5.26% YoY) and information and communications sectors (9.03% YoY) lifted out the growth.
Late harvest in several places as mentioned by coordinating minister of economic, mainly due to distributional problems. It made supply of shallot, chili, vegetables and some other food products were limited, hence boost the price.
Government consumption growth should also be higher at around 7.5% YoY due to election preparation. However, downside risk in investment growth.
If a trade deal to lift up previous tariff sanction is reached, it may give a boost to US and China economic.
Currency movement is also favorable as Rupiah move within 13,800 – 14,300 range.
The negative import growth of China in December has made Indonesia export to experience -4.6% YoY growth and made the trade balance remained high at USD 1.1 bn.
Bank Indonesia (BI) will start its two-day board of governor meeting in Feb 20 and announced the result in Feb 21.
Initially, we expect that airlines baggage fee will push transportation inflation higher in January.
Bank Indonesia (BI) is expected to release 4Q18 balance of payment data (BoP), including the current account deficit (CAD) data, on Feb 8.
Industry wise, the main source of growth came from services sector especially trade and communication.
President Trump has promised to raise the tariff rate on USD 200 bn in Chinese imports to 25% from 10%.
Indonesia’s investment growth was still high at 6.96% YoY in 3Q18 and BI still see the growth will be above 6% YoY in both 4Q18 and 1Q19.
Lower oil price started to take oil and gas import down as December figure denoted negative growth.
There are some concerns of government’s opportunity to raise subsidized fuel price after 2019 election.
High volatility became the main theme of 2018 macroeconomic environment. Government will all out to maintain inflation, especially for food sector, in order to secure its position in upcoming election.
With national elections around the corner, Jokowi seems to be backtracking on his reform agenda with a string of populist measures. Jokowi plans to keep electricity tariffs and fuel prices unchanged over the next two years by hiking energy subsidies in draft state budget 2019.
EU has been using palm oil primarily for biodiesel mix and demand from the region has been relatively flat as palm oil infamously recognized as environmentally unfriendly product.
The residential property market is relatively in at better state compared to other subsectors as the growth in house prices were more sustainable at aggregate 3.3% YoY in 2Q18 and according to BI prediction will maintain at 3.3% in 3Q18.
OPEC has faced some difficulties balancing the market due to unexpected supply disruptions within the OPEC, especially for Venezuela and Libya.
We expect thermal coal prices next year could average around 6% less than in 2018 amid the prospect of slackening Chinese and Indian import demand and higher supply from Indonesia.
New contracts could improve in 2H18 as the acceleration in infrastructure project will be faster in 2H due to the backend loading of infra-spending. Moreover, contractors under our coverage still book higher earnings growth in 2Q18 by 68% on average.
We believe solid backlog order until October 2019 for mining equipment as miners need to increase production and replace ageing equipment will support our view.
Although have been aggressively adjust the time deposit pricing, the effect on bottom line is manageable as time deposit does not dominate the big banks’ book. Certain smaller banks, such as BBTN would also have better protection again NIM pressure as sizeable portion of their lending is linked to floating benchmark rate.