KPMG Financial Performance Index (KPMG FPI)

• Indonesia experienced a decrease from 90 to 87 in KPMG FPI score from the third quarter (Q3) of 2023 to the first quarter (Q1) of 2024. Recent elections impacting investment, rising interest rates, combined with depreciating Rupiah value contributed to the slow economic growth experienced during this period.
• Out of the five largest sectors by market capitalization, in Q1 2024, all sectors had a FPI score greater than 90, except for financial services (87) and technology and telecommunication (88). While consumer markets (74) registered FPI score of below 85.

• The overall decline in FPI score in Q1 2024 compared to Q3 2023 was primarily driven by the consumer markets (down by 16.68 percent), infrastructure and real estate (down by 5.55 percent), and travel and hospitality (down by 4.93 percent) sectors.
• The top-performing sectors in the past six months were business services (up by 1.89 percent) and technology and telecommunication (up by 0.38 percent). The growth in these sectors can be attributed to the influx of investments from large technology players.
• Investment banking as a sub-sector of financial services sector experienced high growth by more than 11 percent, similarly, commercial services and supplies, as a sub-sector of business services supported the sector with high FPI score of above 95 points across the past six months.
• Consumer markets, infrastructure and real estate, and packaging products experienced significant declines in FPI sector scores in Q1 2024, largely due to significant downfall in retailers, real estate development and diversified activities and paper containers and boxes sub-sectors, respectively. Consumer markets experienced its lowest FPI score since Q1 2022 with 74 FPI points in Q1 2024.
• Amongst sub-sectors, leisure services in travel and hospitality and air freight and logistics in transportation and logistics showed positive momentum with gains of 25.15 and 6.88 percent in FPI score. The growth in leisure services can be attributed to a surge in tourism activities.
• On the contrary, advertising (a sub-sector in media and entertainment) witnessed a steep decline in KPMG FPI score with downfall of 54.37 percent which can be attributed to factors including the anticipation of an economic downturn. As a result, marketing and advertising budgets are becoming increasingly vulnerable to cuts, leading to reduced investments in advertising activities.
• Over the period, from Q3 2023 to Q1 2024 only 12 sub-sectors witnessed growth and 36 sub-sectors witnessed decline. However, of the declining sub-sectors, only seven sub-sectors reported FPI scores below 85 points.

• Indonesia's GDP growth eased slightly to an average of 4.9 percent over 2024-2026, down from 5.0 percent in 2023, primarily due to the reduction of commodity prices. This slowdown reflects the end of the commodity boom that had previously fueled rapid economic expansion.
• Private consumption is anticipated to be one of the major drivers in the economy and growth are expected in sectors linked to private consumption such as consumer markets, packaging products, and food and beverages amongst others.
• Business investment and public spending are also expected to pick up because of reforms and new government projects. Inflation is projected to moderate to 3.2 percent in 2024, down from an average of 3.7 percent in 2023, aligning with Bank Indonesia's target range. The easing inflationary pressures stem from softening commodity prices and a normalization of domestic demand growth following the post-pandemic rebound.
• Services exports are expected to benefit from a continued recovery in tourism, while lower commodity prices and weaker global growth will hamper exports of goods. The government's efforts to attract greater levels of investment through labors reforms, aim to fuel job creation and economic growth, although these efforts face opposition from various groups.
• Indonesia is actively addressing climate change challenges and aiming for a green transition. However, upward risks to food prices persist due to the potential disruptions caused by the El-Niño weather pattern, which could impact food production in certain regions.
• The Indonesian government has implemented policies aimed at improving infrastructure, diversifying the economy, and reducing barriers to doing business. 

The KPMG FPI is a metric used to measure a company’s financial health by its ‘probability to default’. The analysis has been prepared using John Y. Campbell, Jens Hilscher, and Jan Szilagyi’s probability to default formula which takes into account financial information and market data. The KPMG FPI score ranges from 0 - 100. The lower the KPMG FPI score, the more likely a company is to default. In contrast, the higher the score, the less likely it is to default. In this analysis, released every three months, we analyze the KPMG FPI score movements of publicly listed companies in Indonesia (following the reporting season of full year and half year results) to draw insights into corporate health across the Indonesian economy.

KPMG FPI combines both market and financial information to determine a company’s relative financial distress levels. KPMG believes that combining the two types of information detects deteriorating corporate health more effectively than either source alone.