GDP growth to dip further. We expect GDP growth to ease to 4.8% y-o-y in 2Q, slightly lower than 4.9% in 1Q (Exhibit 1). Private consumption and net exports likely softened, while investment and government spending saw slight improvements. On a seasonally adjusted basis, we expect GDP growth to improve to 1.3% q-o-q sa from 1.2% in 1Q. The Statistics Agency is set to release the data on Tuesday, 5 August.
Weak private consumption. We expect household consumption growth to moderate to 4.7% y-o-y in 2Q, down from 4.9% in 1Q and 5% in 4Q24, in line with most high-frequency indicators. This also reflects a high base effect from the shifting Lebaran and harvest season, which occurred in 2Q last year versus 1Q this year. Growth in the Retail Sales Index dropped to 1.2% y-o-y from 2.8% in 1Q, with consumer confidence also softening (Exhibit 2). Spending on food and beverages and cars is likely to decline further.
Slightly higher investment. Investment growth is likely to increase slightly to 3.2% y-o-y from 2.1% in 1Q, primarily due to improvement in construction activity which is consistent with the recovery of cement consumption and government capital expenditure. In addition, business confidence also improved in 2Q, led by manufacturing and accommodation-F&B sectors (see Macrosnap: Business Confidence Rebounds in 2Q). However, weaker indicators such as the lower Manufacturing PMI and commercial car sales suggest that non-building investment likely remains in weak.
Limited support from government spending. We expect government consumption growth to rise to 2.2% y-o-y in 2Q from -1.4% in 1Q, reflecting higher budget disbursement following efficiency gains, which reached IDR135tn as of 24 June (see Fiscal Watch: June Spending Improved, Fiscal Deficit Outlook Set Wider). Meanwhile, net exports are likely to contribute 0.7 percentage points (pp), slightly lower than 0.8pp in 1Q, in line with the decline in the goods trade surplus to USD8.6bn in 2Q from USD10.9bn in 1Q (see Trade Review: June Trade Surplus Declines Despite Pre-Tariff Export Boost).
