With Indonesia's growth numbers in the spotlight this week, doubts are growing over President Joko Widodo's ability to stimulate the economy as the country faces the prospect of a severe slowdown.
Investors are bracing for a weak first-quarter gross domestic product (GDP) report on Tuesday, which could show growth falling below 5 percent, Daiwa Capital Markets estimated, worse than 2014's 5 percent increase, a five-year low.
"On-the-ground channel checks suggest severe growth deceleration with various sectors experiencing declines of 30-90 percent on year. From brick sellers to diamond shops, the adverse impact of the slowdown appears to be widespread," Daiwa said in a report last week. An economic rebound isn't likely until the third-quarter, judging by seven straight months of shrinking manufacturing activity, it said.
"Indonesia is in dire need of some growth," added Credit Suisse said in a recent note. "The question is, what can the government do to stimulate growth? And, just how effective such a policy will be?"
It's a concern reflected in the stock market, with the Jakarta Composite dropping more than 6 percent last week as poor results from index heavyweights sparked growth concerns. Stocks on Monday, however, managed to rebounded more than 1 percent.
With net foreign outflows of over $1 billion since mid-March and year-to-date losses of nearly 3 percent, the benchmark is now one of the world's worst-performing indexes.
Market players are particularly concerned about a shortfall in the government's revenue collection, which might hurt spending, especially on infrastructure projects key to Indonesia's growth.
The country's president, usually referred to as Jokowi, is focusing the 2015 budget on a 14 percent increase in total revenue, a 30 percent rise in tax collection and a 60 percent increase in infrastructure spending. But lower commodity prices could result in a $21.4 billion revenue shortfall, the World Bank warned last month. Should that occur, government spending could be reduced by 2 percent of GDP, according to DBS.
"The budgeted increase in capital expenditure is the highest, and thus, the one most at risk [of cuts]. Cutting investment would represent yet another drag on GDP growth in the near and medium term," DBS said in an April note.
Only 31.7 percent of infrastructure tenders have been awarded so far, Daiwa noted, way behind the President's plan of finishing all tenders by the end of March.
Despite the gloomy predictions, some analysts remain optimistic. Even if there is no annual growth in tax revenue, infrastructure spending can still grow 60 percent, according to Credit Suisse.
CIMB agreed, noting that even if tax revenue grows by only 5-8 percent on year, infrastructure spending could still grow by 26-62 percent on year.
Moreover, if GDP bottoms out in 2015, earnings growth for 2016 could be twice as high as what consensus is currently predicting, Credit Suisse added.
Others say it's time to bargain hunt for beaten-down stocks.
"We think this correction shall be shallow," CIMB said. Heavyweight stocks are over-owned and loftily valued, as they are viewed as safer havens in times of uncertainty, making them an easy target during sell-offs, the bank said.
"The script to play the sell-off is the same as before i.e. buy good companies that are sold down."