Indonesia: 4Q upside surprise bodes well for 2018

Domestic demand drivers recorded improvements in 4Q, in line with expectations. Household spending grew almost 5%, a slight uptick from 3Q's 4.9%. Government spending moderately accelerated to 3.8% YoY from 3.5% in 3Q while business spending showed some improvement. The fourth quarter performance puts the average growth for 2017 at 5.1%, also in line with expectations.

Growth in 2018 looks promising. Indonesia goes to regional elections at mid-year which culminates with a national election in 2019. Election years show significant improvements in domestic demand, especially government spending. The last major election showed an additional 2ppt increase in government spending growth.

Household spending is also likely to rise on the back of moderate inflation for most of this year. Business spending is also likely to show sustained improvement with construction and manufacturing leading the growth. Net exports would again positively contribute to overall growth on the back of elevated commodity prices and higher global growth.