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ECONOMIC UPDATE - GDP - 1Q23 GDP is better-than-expected



1Q23 GDP beats expectations on higher exports

Statistics Indonesia (BPS) recorded 1Q23 GDP growth of 5.03% YoY, surpassing our estimate and consensus of 4.90% YoY and 4.97% YoY, respectively. This figure also accelerated compared to the previous quarter, which stood at 5.01% YoY. From the production side, the highest growth came from the transportation and storage sector, which grew by 16.28% YoY. Meanwhile, the export of goods and services experienced the highest growth of 11.68% YoY on the expenditure side. The nominal GDP reached Rp5,071.7 tn, while the real GDP was recorded at Rp2.961,2 tn in 1Q23. We expect economic growth to slightly decelerate from 5.03% in FY22 to 5.0% YoY in FY23 following the global economic slowdown and normalization of commodity prices.


Household consumption remains the biggest contributor

Household consumption still dominated Indonesia's economy, contributing 52.88% of 1Q23 GDP. Besides, household consumption increased by 0.25% QoQ and 4.54% YoY, respectively. This level was also consistent with some indicators, such as the Consumer Confidence Index (CCI) and Purchasing Manager Index (PMI), which stayed in the optimist zone during 1Q23. Furthermore, we think household consumption will rise in 2Q23 due to the Eid-al-Fitr impact. In addition, we believe the campaign activities will boost household consumption this year. We expect household consumption to increase by 5.2% YoY for FY23.


Government spending growth turns positive

Government spending contributed 5.32% of 1Q23 GDP and grew by 3.99% YoY, reversed from the previous quarter of -4.77% YoY. On a quarterly basis, government spending experienced the deepest contraction of -45.38% QoQ, mainly due to lower state expenditure realization at the beginning of the year. According to the Minister of Finance, the state budget recorded a surplus of Rp128.5 tn in 1Q23, equivalent to 0.61% of GDP. We expect that the fiscal balance in 2023 will be -2.7% of GDP, lower than the budget deficit limit of 3%. Besides, we forecast government expenditure growth of 1.2% YoY this year. We think the government's expenditures will increase, particularly on social assistance and subsidies. Based on the data, social assistance and subsidies tend to increase one year before the election. We also believe the government will keep its plan of infrastructure investment as a supplementary growth engine.


Maintain political stability to boost investment

As the second biggest contributor (29.11% of GDP), gross fixed capital formation (GFCF) or investment grew by 2.11% YoY in 1Q23. Meanwhile, investment realization was up 16.5% YoY or 4.5% QoQ to Rp328.9 tn (USD22.19 bn) in 1Q23, which represents 23.5% of this year's investment target of Rp1,400 tn (USD94.44 bn). Based on the 1Q23 achievement, we think that the investment realization target of Rp1,400 tn (USD94.44 bn) can be fulfilled by maintaining political tension. A conducive political situation is essential for attracting investment. Besides, we believe the government's downstream commodities and reforms under the Omnibus Law are among the key drivers hastening the rise in investments. Moreover, we expect gross fixed capital formation growth of 4.2% YoY this year.


Export is threatened by the normalization of commodity prices

Export and import accounted for 22.71% and 19.56% of 1Q23 GDP growth, respectively. Export climbed by 11.48% YoY, while import rose by 2.77%. However, on a quarterly basis, export and import slipped by -5.40% QoQ and -6.95% QoQ, respectively. Indonesia's trade balance is facing the end of the commodity windfall and easing commodity prices may lead to lower trade surpluses in 2023 as exports are still mainly made up of raw materials and commodities. Furthermore, we expect export and import growth of 5.4% YoY and 5.1% YoY, respectively, this year.