What to watch 15 February

Indonesia’s economy after the elections, a tale of two consumers in the US and UK and Türkiye’s economic rebalancing

16 February 2024

Executive summary

This week, we look at four important issues: :

  •  Indonesia after the elections: economic policy continuity is necessary but not sufficient. Current defense minister Prabowo Subianto came out ahead in this week’s election. Prabowo pledged continuity (and even selected Joko Widodo's eldest son as his running mate) to secure the tacit backing of the very popular outgoing president. While Jokowi's structural reforms supported productivity and attracted foreign investment, Prabowo will have to do even more to keep Indonesia in the economic champions league of a decoupling world. First, Indonesia’s export market share in the US has increased much less than that of peers such as Vietnam, Thailand or India since 2019. Second, with the world's largest exploited nickel reserves, Indonesia has established itself as a player in global battery and electric vehicle supply chains. Yet, maintaining and expanding this sweet spot in the transition requires further push and reforms in infrastructure, foreign investment restrictiveness, the labor market, the rule of law and the control of corruption.
  • UK ants v. US grasshoppers? Despite strong growth in real disposable incomes in 2023 (ca. +2-4%), and similar benefits from consumer credit (ca. 0.5-0.7pps of contribution to consumer spending growth) in both the US and the UK, US consumers are spending far more than their UK counterparts (+2.2% vs +0.3%). More generous fiscal policy and very positive net interest payments in the US explain part of this difference. More importantly, US household savings declined by -3pps of disposable income in 2023, while they increased by the same amount in the UK. In 2024, we expect around +2% for household consumption growth in the US and +1% in the UK on the back of positive wealth effects. 
  • Türkiye: pushing through economic rebalancing. We expect that the tight monetary policy stance will be maintained after the change of central bank governor in early February. As a result, gradual disinflation should set in in the second half of 2024 and the current account deficit should narrow to a more manageable -3% of GDP this year. We forecast real GDP growth to slow down to +3% this year, inflation to moderate to around 30% at end-2024 and the central bank to keep a tight stance with an end-year policy rate of 32.5%. That said, a key risk is that the growth slowdown could prompt policymakers to reverse course too soon and too much, thereby failing to reap the medium-term gains.

Ludovic Subran

Allianz SE

Françoise Huang

Allianz Trade

Manfred Stamer

Allianz Trade

Maxime Darmet

Allianz Trade