Indonesia is no longer so fragile - BBH

Analysts from BBH argued that Indonesia is no longer a member of the “Fragile Five” (which also included Brazil, India, South Africa, and Turkey) due to improved fundamentals, and is well-placed to ride out the impact of Fed tightening this year.

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"The economy is picking up modestly.  GDP growth is forecast by the IMF to accelerate to 5.3% in 2017 and 6.0% in 2018 from 5.0% in 2016.  GDP rose 4.9% y/y in Q4, decelerating for the second straight quarter.  As such, we see slight downside risks to the growth forecasts.  Consumer confidence has been climbing since 2015 and is just below all-time highs. This is important, as domestic consumption is a bigger driver of growth than exports."

"Price pressures are rising, with CPI accelerating to 3.8% y/y in December.  This is the highest rate since March 2016, but well within the 3-5% target range for five straight months.  This supports the case for steady rates near-term.  Looking ahead, a low base of comparison from 2016 suggests headline inflation will continue to rise this year."

"One of the biggest changes in Indonesia since 2013 is political.  President Joko Widodo (Jokowi) took office in 2014 and is nearly halfway through his term.  Our base case is that he will be re-elected to a second five-year term in 2019.  Parliamentary elections will be held simultaneously for the first time. After quickly cutting fuel subsidies after taking office in 2014, Jokowi turned the focus to structural reforms that are meant to boost competitiveness and bring in foreign investment.  The nation now ranks 91 (out of 190) in the World Bank’s Ease of Doing Business rankings, up sharply from 106 in 2016.  He has also put greater emphasis on infrastructure spending."