Indonesian economy: Tough times ahead

Private consumption growth of below 5% y-y in 2Q15 and declining imports in July (-28% y-y) affirm our view of continued weak domestic demand and investment. That said, the tight monetary policy of the past two years should continue to result in economic moderation through 1Q16.

Region-wise, we expect the commodity economy outside of Java to persist with lower growth amid soft commodity prices. At this point, room for a BI rate cut to spur growth still appears limited, as the Indonesia-US real interest rate gap remains small. Historically, a recovery has often followed a negative output gap by 3-4 quarters (exhibit 1). Read more click here