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INDONESIA: VIEW: HSBC Expects Two More BI Rate Cuts

INDONESIA
EM BulletAPACEmerging Market NewsBulletIndonesiaMarketsFixed Income Bullets

HSBC expects Indonesian growth to pickup slightly in 2025 to 5.1% from 5% last year, as fiscal policy is supportive of growth, especially in Q1, and Bank Indonesia cuts rates to 5.25% by mid-2025. 

  • HSBC notes that Q1 “growth is likely to get some support. Recall that the government gave a 50% discount on electricity tariffs for January and February, committed to distribute 10kg rice per month to 16m beneficiaries for a few months in 2025, launched free meals for school children, and limited the VAT rate increase to only luxury goods and services. These steps could help increase the purchasing power of households.”
  • “Industry continued to grow faster than services, but its growth momentum slowed compared to the previous quarter. Within industry, mining activity remained strong, but manufacturing and construction slowed. Recall that PMI manufacturing remained in contraction from July to November.”
  • “Weakness in construction could be reflective of weak investment activity.”
  • “Agricultural activity rose (up 2.5% 3m/3m saar in 4Q24). It has been oscillating sharply between contraction and expansion since 4Q23.”
  • The Q4 GDP data “also revealed how Indonesia is climbing up the metals value chain in manufacturing.” There has been “a successful transition from exporting ores to exporting proceeded metals. However, we are yet to see notable increase in the manufacturing of transport equipment, i.e. the second stage of value addition in manufacturing.” 
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HSBC expects Indonesian growth to pickup slightly in 2025 to 5.1% from 5% last year, as fiscal policy is supportive of growth, especially in Q1, and Bank Indonesia cuts rates to 5.25% by mid-2025. 

  • HSBC notes that Q1 “growth is likely to get some support. Recall that the government gave a 50% discount on electricity tariffs for January and February, committed to distribute 10kg rice per month to 16m beneficiaries for a few months in 2025, launched free meals for school children, and limited the VAT rate increase to only luxury goods and services. These steps could help increase the purchasing power of households.”
  • “Industry continued to grow faster than services, but its growth momentum slowed compared to the previous quarter. Within industry, mining activity remained strong, but manufacturing and construction slowed. Recall that PMI manufacturing remained in contraction from July to November.”
  • “Weakness in construction could be reflective of weak investment activity.”
  • “Agricultural activity rose (up 2.5% 3m/3m saar in 4Q24). It has been oscillating sharply between contraction and expansion since 4Q23.”
  • The Q4 GDP data “also revealed how Indonesia is climbing up the metals value chain in manufacturing.” There has been “a successful transition from exporting ores to exporting proceeded metals. However, we are yet to see notable increase in the manufacturing of transport equipment, i.e. the second stage of value addition in manufacturing.”