Indonesia Q3 GDP Growth Misses Expectations, Clings Just Above 5%

Indonesia's gross domestic product grew slightly slower than expected in the third quarter, as private consumption continued to flatline, confounding efforts by policymakers to push economic growth much above 5 percent. (Antara Photo/Lucky R.)

By : Nilufar Rizki & Hidayat Setiaji | on 12:32 PM November 06, 2017
Category : Business, Economy, Featured

Jakarta. Indonesia's gross domestic product grew slightly slower than expected in the third quarter, as private consumption continued to flatline, confounding efforts by policymakers to push economic growth much above 5 percent.

Southeast Asia's largest economy expanded 5.06 percent in July-September from a year earlier, the Central Statistics Agency said, compared with 5.01 percent in both the first and second quarters. A Reuters poll forecast 5.13 percent.

Indonesia's growth has stagnated at around 5 percent since the fourth quarter of 2014 as private consumption, which accounts for about half of GDP, has remained sluggish.

Private consumption grew 4.93 percent in the third quarter, a fraction below the 4.95 percent pace in the second quarter, government data showed on Monday.

On a more encouraging note, government spending grew 3.46 percent in the third quarter, picking up pace after a near 2 percent contraction in April-June.

In a bid to spark more lending and growth, the central bank has cut its benchmark interest rate eight times — by a total of 2 percentage points — since the start of 2016. The latest cuts, which surprised the market as global rates are generally rising, came in August and September.

Inflation, often a problem in Indonesia, has been low this year — giving Bank Indonesia (BI) room to make rates cuts.

So far, however, there is not much indication lower rates have spurred more activity. In September, bank lending expanded 7.86 percent from a year earlier, below Bank Indonesia's 2017 target of 10 percent.

"We see little prospect of a sustained recovery," Gareth Leather, senior Asia economist at Capital Economics, said in a note.

He said that while an acceleration in global demand should help boost export volumes, subdued commodity prices meant the impact would be less pronounced than in the past.

Battling the Bureaucracy 

BI has maintained its economic growth forecast this year to be between 5-5.4 percent.

The government's target is 5.2 percent growth this year, but President Joko "Jokowi" Widodo's administration is struggling to see growth climb towards the 7 percent level in 2019 he pledged when campaigning in 2014.

Indonesia has boosted infrastructure development and launched economic deregulation packages to try to cut red tape and streamline its notorious bureaucracy. Still, Widodo has complained about many ministerial regulations hurting investments.

Finance Minister Sri Mulyani Indrawati told Reuters last week that stronger global growth was starting to feed through to Indonesia's economy.

Asked about sluggish consumption, Indrawati noted shifting patterns of consumption and said some groups were being hit by a cut in electricity subsidies and stagnant wage increases in sectors like construction.

Reuters

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