Indonesia’s Economy Crawls at Snail’s Pace
Jakarta. Indonesia’s economy grew at the slowest pace in more than five years in the first quarter, feeling the effects from weak exports and lower crude oil prices.
Gross domestic product rose 4.71 percent in the January-March period from the same quarter in 2014, the Central Statistics Agency (BPS) reported.
Growth slowed from 5.01 percent in the fourth quarter of last year and was the weakest since the 4.12 percent pace in the third quarter of 2009. On a quarter-on-quarter basis, GDP rose 0.18 percent.
BPS chief Suryamin said that economic growth was affected by declining economic growth of Indonesia’s export-target countries and the weakening price of crude oil.
“Low commodity prices have an effect on provinces’ GDP, which will also affect the national economy,” said Eric Alexander Sugandi, an economist at Standard Chartered Bank in Jakarta.
By the source of expenditure contribution, household consumption — which contribute to 56 percent of the GDP figure — grew 5.01 percent in the first three months of the year from the same period in 2014.
It was the same pace of growth as in the fourth quarter of 2014.
Investment, contributing to 32 percent of the economy — picked up pace, growing by 4.36 percent from 4.27 percent. Government spending growth slowed to 2.21 percent from 2.83 percent.
According to the previous BPS data, exports slumped 12 percent, while imports declined 15 percent.
Sector-wise, information and communication grew the fastest (10.53 percent), followed by financial service (7.57 percent), business services (7.36 percent), and transportation and storage service (6.35 percent).
Noergadjito, secretary general of the Association of Indonesia Automotive Industries (Gaikindo), said Gaikindo now expected its members to sell 1.1 million cars this year, down from the previous target of 1.2 million.
The manufacturers sold 1.2 million cars last year, stoking confidence that Indonesia could exceed Thailand as the largest car market in Southeast Asia.
“It is a bit abnormal, which is why we’re more careful about making the forecast,” Noergadjito said on Monday. “Whether we revise again or not in the middle of the year, it will depend on the macroeconomic situation, namely inflation, interest rate and fuel prices.”
Economic growth is one factor that affects car sales, apart from other macro conditions, like inflation and fuel price, two main reasons that would generally hold off sales.
The rupiah dropped 0.5 percent against the dollar to 13,044 on Tuesday. It is the biggest decliner this year among 11 Asian currencies tracked by Bloomberg.
Indonesian stocks, surprisingly, continued its gain on Tuesday, climbing 0.37 percent to 5,160.308. Trading volume stood at Rp 5.73 billion ($439,756) with a value worth Rp 6.2 trillion.
Foreign investors contributed to 46 percent of the day’s trading, buying Rp 454.9 billion more shares than they sold.
“There were also some [market] players that held their positions because they think it was still undervalued,” Eric said.
Having observed the first quarter growth, one economist said the government should revisit its 5.7 percent growth target for the entire year, as set in the revised 2015 State Budget.
“The 5.7 percent target is really hard to reach. We need more than 6 percent growth [in the following quarters of 2015] to reach it. The number has become unrealistic,” Eric said.
President Joko Widodo hopes to propel the economy back to its strong annual growth rate of 7 percent, amid ambitious plans to boost infrastructure development, including the construction of new seaports and roads.
“We need a reality check. The [Joko administration’s] first year in office is a consolidation year, meaning it has to be more realistic. We need to speed up infrastructure development first,” he added. “A fast-growing economy can be the second year’s target.”
Responding to Tuesday’s data, Bank Indonesia released a statement saying it expects the country’s economy will start to pick up in the second quarter, when government spending is projected to increase.
“Government spending will become a stimulus for economic growth. Investment growth is also expected to be higher in the second quarter and afterwards, as government spending will also be higher for infrastructure projects,” said Tirta Segara, an executive director at Bank Indonesia.
Tirta added, however, that the central bank is aware of the risk that economic growth may reach the lower end of the target of 5.4 percent to 5.8 percent.
“The scale and the speed of infrastructure project realizations will determine the possibility of reaching the government’s target, along with strong consumption and gradually better export,” Tirta said.
Ryan Kiryanto, chief economist at state-controlled Bank Negara Indonesia, urged the government to refrain from making a decision that would be “unfriendly” to the market and may squeeze companies’ earnings amid the slowdown.
The chairman of the Indonesian Young Entrepreneur Association (Hipmi) called on the government to help provide a conducive environment for the manufacturing sector to grow, create employment and ultimately stimulate the economy.
He also criticized Joko’s administration for failing to complete the tenders of infrastructure projects six months after entering office.
“Fiscal stimulus should be in the focus, though impact will not be felt in the near term. Furthermore, coordination between ministries remains a problem,” said Dian Ayu Yustina, an economist with Bank Danamon Indonesia.
“Talks of a cabinet reshuffle have surfaced, considering the president has the [right] to immediately replace [ministers] who do not perform. But we do not think that this is a good idea since it could further delay spending.”
“The government needs to be more assertive to the political distortion and focus more on the economic policies. This is to improve people’s confidence that has been recently declining due to the unpopular policies taken,” Dian said.
Source: The Jakarta Globe