A laborer pulls a cart loaded with goods at Sunda Kelapa port in Jakarta. The finance ministry has hinted that a higher budget deficit is in sight for this year due to faster government spending. (Reuters Photo/Darren Whiteside)

Indonesia's Growth Slows to 5-Yr Low, Outlook Mixed This Year


FEBRUARY 05, 2015

Jakarta. Indonesia’s pace of economic growth continued its decline last year amid waning export demand and slowing investments, while anticipation of greater government spending on infrastructure offers some analysts a brighter outlook this year.

Gross domestic product grew 5.02 percent last year, the Central Statistics Agency (BPS) announced on Thursday. That was the smallest gain since 2009, when the economy grew 4.6 percent. In 2013, Indonesia’s economy grew 5.58 percent.

In 2014, BPS recorded Indonesia’s GDP at Rp 10,542.7 trillion ($836.73 billion).

Exports of goods and services — which make up 24 percent of the economy — saw the slowest growth last year at 1 percent, down from 5.3 percent in 2013.

Investments and household spending also slightly lagged last year with growth at 5.1 percent and 4.1 percent, respectively. Household spending made up 56 percent of the economy, while investments contributed 33 percent.

David Sumual, chief economist at Bank Central Asia, said the slowdown was largely expected, adding that sluggish pace is likely to spill over to this year’s first half as investments and exports eke out growth.

“We will probably still see [a slowdown] through the first quarter of the year, with a chance of acceleration in the second quarter. Investors are still in a wait-and-see mode this month, because political sentiments are still relatively [uncertain],” he said.

BCA’s David added that the global decline in oil and commodity prices, as well as lagging demand from the country’s major trading partners, will continue to dampen demand this year.

Earlier this week, BPS reported that softer export growth — especially with key trading partners China and Japan — had also dragged the country’s trade balance to a $1.8 billion deficit last year.

The slow pace of exports is expected to remain a factor, David said, meaning government spending will have to be a key driver of growth.

Economists at Barclays echoed the sentiment, highlighting a relatively bullish outlook on the government’s plan to speed  up infrastructure development this year.

“Looking ahead, a structural transformation story is developing well into 2015 as President Joko Widodo has pledged to achieve a growth target of 5.7 percent in 2015,” said Barclays’ Wai Ho Leong and Angela Hsieh in a note on Thursday. “This will be accomplished ... by undertaking infrastructure projects to attract investment.”

Barclays sees 5.3 percent growth this year: “The stimulus from infrastructure projects will kick in later this year; initially, growth will be hampered by increasing capital equipment imports.”