GDP 4Q10: Riding on global economic recovery - Mandiri Sekuritas

Indonesia GDP grew 6.9% yoy in 4Q10, beating our and consensus estimate of 6.2% and 6.3% respectively. Besides remain robust domestic demand, strong jump in 4Q10 growth number was also attributed to significant improvement in net exports. Global economic recovery has driven net-exports to grow by 13.7% yoy (vs. only 1.4% yoy in 3Q10), while domestic demand growth eased to 5.9% yoy (vs. 6.2% yoy in 3Q10). Same picture is reflected on the production side, whereas the biggest improvement was seen in exports related sectors.

Going forward we believe the growth momentum remain strong, despite challenge from rising inflation and interest rate. Improvement in labor market and income will support private consumption from the downward pressure of higher interest rate environment. Investment growth is expected to accelerate amid upgrade in sovereign rating, while exports will continue to ride on the global economic recovery, which will mainly driven by Asia region.

Given the above challenges, we maintain our 2011 GDP forecast at 6.3% yoy in 2011 and interest rate hike of 25bps for remaining of the year to 7%. We think further strong economic growth reading, of which driven by more solid domestic demand growth, will be required to have more aggressive increase in interest rate.