Indonesia's economy expanded at its slowest pace in two years in the third quarter as investment continued to taper and economic activity in Papua and Maluku shrank. (Antara Photo/M Risyal Hidayat)

Indonesia's GDP Growth Slows to 2-Year Low, While Maluku, Papua Economies Continue to Shrink


NOVEMBER 05, 2019

Jakarta. Indonesia's economy expanded at its slowest pace in two years in the third quarter as investment continued to taper and economic activity in Papua and Maluku shrank.

Southeast Asia's largest economy grew at 5.02 percent between July and September, compared with the same period last year, the Central Statistics Agency (BPS) announced on Tuesday. The country's economy recorded 5.17 percent growth in the previous quarter. The last time the Indonesian economy expanded this slowly was in the second quarter of 2017.

Gross domestic product growth was mainly due to robust household consumption, which makes up 57 percent of the economy and grew at 5 percent.

Investment, on which President Joko "Jokowi" Widodo pins his hopes to propel the Indonesian economy, grew at only 4.7 percent, compared with the previous quarter's 5 percent.

Government spending and exports stagnated, with growth of only 1 percent and 0.02 percent, respectively. An 8.6 percent slump in imports is meanwhile a telling sign of tamer economic activity, as Indonesia still depends on raw materials and machinery imports for production. 

Geographically, all major islands registered growth of above 5.5 percent, except Sumatra, Papua and Maluku.

Sumatra, which accounts for a fifth of the national economy, expanded at only 4.49 percent, while Papua and Maluku – which together contribute only 2.3 percent – shrank by 7.4 percent. The latter two regions were practically in a technical recession, with their economies having shrunk for more than two quarters in a row. However, they did see an 18 percent growth spurt last year, according to BPS data, suggesting that the current slump may be due to a high-base effect.  

Several cities in Papua also saw the worst riots and violent clashes of the past decade in August, which displaced thousands of people and disrupted economic activity for weeks. 

Jittery Investors

The effect of the slowing economy was even more pronounced among publicly listed companies.

Sales of the 67 largest companies listed on the Indonesia Stock Exchange, representing about two-thirds of the total market capitalization, only grew by 5.3 percent year-on-year in the first nine months, fund manager Eastspring Investments said in a research note to clients on Tuesday.

Net income shrunk by 1.3 percent on average, with exceptions for the media, hospital and telecommunications sectors.

Eastspring Investments said with real GDP growth at about 5 percent and inflation at 3 percent, typical net income growth should be 8 percent. This means companies that record growth above 8 percent are most likely not listed on the local bourse.

"The challenge we face as investors in the capital market is catching Indonesia's growth potential when it is not represented by companies in which we can invest through the stock exchange," Eastspring Investments said. 

Based on the data, Eastpring said several sectors registered above-average sales growth, such as metal mining (33 percent), health care (18 percent), media (10 percent), retail (9.1 percent) and consumer goods (7.2 percent). 

Sales growth lagged 1.8 percent in the cement and toll road sectors, and 1.2 percent in the automotive sector, while it increased 4.6 percent the telecommunications sector.

Sales in the textile sector fell 4.9 percent, while the petrochemical sector remained stagnant. The plantation sector saw a 6.9 percent decline in revenue, while other sectors that also saw declines were coal (1.3 percent), property (4.9 percent) and construction (20 percent).