Indonesia’s Economy Slows in Q3 on Weaker Exports, Govt Spending Slump
Jakarta. Indonesia’s economic growth slowed in the third quarter of this year, dragged down by weaker exports and cuts in government spending, data from the Central Statistics Agency, or the BPS, showed on Monday (07/11).
The Indonesian economy grew 5.02 percent in July-September from the same period last year, slower than the 5.19 percent year-on-year growth in the second quarter.
BPS data showed that exports contracted deeper in the third quarter, by 6.0 percent, from 2.73 percent in the second quarter.
Indonesia’s exports had weakened in recent years as low global commodity prices reduce demand for key commodities from the resource-rich nations. This has spiraling down effects on foreign investment and consumer spending.
Government spending, according to BPS data, even made a U-turn, as it contracted by 2.73 percent from a 6.28 percent growth. Investment grew slower at 4.06 percent, down from 5.06 percent.
Information technology and communication; finance and insurance; transportation and storage sectors grew the fastest at 9.2 percent, 8.83 percent and 8.2 percent respectively.
Not a big surprise
The weak statistics did not come as a surprise to the market. A median forecast from a Reuters poll of 12 economists earlier already tipped for a growth slowdown in the third quarter to 5.04 percent.
Gundy Cahyadi, an economist and researcher at Singapore-based DBS Bank, said the figure is pretty much "expected," even though he was worried that investment was growing at a slower pace.
He attributed the weaker government spending on recent budget cuts by the government in a bid to avoid fiscal deficit troubles.
Gundy believes government spending, "should pick up again in the fourth quarter of 2016 as the fiscal deficit threat is no longer as significant as it was in early third quarter."
"Without sustained improvement in export earnings, the only possible boost to GDP growth would need to come from government spending," he said.
Finance Minister Sri Mulyani Indrawati in August spearheaded a $10.2 billion government spending cut for the current fiscal year as the government recorded poor revenue collections, especially from taxation.
According to BPS data, the government spent Rp 45 trillion ($3.4 billion) less during July-September compared to the corresponding period last year, reducing the ability of the government to drive the economy in the quarter.
"The government’s hands are pretty much tied by poor revenue collection this year. At the very least, however, we now see lesser risks of a significant fall in government spending by the year-end, on the back of the tax amnesty receipts," Gundy said.
Gundy was referring to Indonesia's fiscal deficit, which is predicted to reach 2.5 percent of its GDP in 2016, according to the finance ministry's projection, which would bring it close to the 3 percent limit allowed by the country's law.
"The recovery in private investment growth is taking place at a much gradual pace compared to what was expected earlier. We would be taking a closer look at the import data going forward for more clues," he said.
Imports of goods and services contracted by 3.87 percent in the third quarter. This was a deeper slump from the 3.01 percent contraction in the second quarter. Slower imports should be a good thing for tthe GDP figure, but they could also be a sign that manufacturing sectors are slowing down due to weaker global demand.
Jokowi expects improvement in Q4
President Joko "Jokowi" Widodo, having seen Monday’s economic data, said he was quietly convinced the country will see improvements in the next quarter.
"Usually in the fourth quarter, budget disbursement expands. That should trigger growth," Jokowi said, as quoted by Reuters on Monday, while adding that the government had expected GDP growth in the third quarter to be slightly below 5 percent.
With additional reporting by Reuters
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