Indonesia Q4 Growth Seen at 5.12% Year-on-Year, as Consumption Stays Weak

Bank Indonesia has cut its benchmark rate by 200 basis points since the start of 2016, yet loan growth has been below 10 percent the past two years. (Reuters Photo/Fatima El-Kareem)

By : Nilufar Rizki, Tabita Diela and Maikel Jefriando | on 5:12 PM February 02, 2018
Category : Business, Economy

Jakarta. Indonesia likely grew at its fastest pace in six quarters in October-December, a Reuters poll showed, but it is still struggling to get economic growth well above 5 percent as pivotal household consumption remains sluggish.

For 2017's last quarter, the median forecast in the poll of 19 analysts was for annual gross domestic product growth of 5.12 percent. That would compared with 5.06 percent in July-September and be the fastest pace since the second quarter of 2016.

Full-year 2017 growth is expected to come in at 5.06 percent, according to the poll, only marginally better than the previous year's 5.02 percent. Bank Indonesia has forecast 5.1 percent growth for 2017.

On a quarterly and seasonally unadjusted basis, GDP was seen contracting by 1.70 percent from July-September.

Growth has remained around 5 percent since 2014, despite some improvements such as higher exports and lower inflation.

"Impressive growth from both exports side and investment side can't significantly boost the Indonesian economy to grow far above 5 percent-level," said Myrdal Gunarto, an economist with Maybank Indonesia in Jakarta.

"Stagnant growth in consumption expenditure is the main reason for the current stable condition in the Indonesian economy," he added.

Household consumption, which accounts for more than half of Indonesia's GDP, remained stubbornly subdued in 2017 despite interest rate cuts by the central bank.

Bank Indonesia has cut its benchmark rate by 200 basis points since the start of 2016, yet loan growth has been below 10 percent the past two years.

More Investment Sought

President Joko "Jokowi" Widodo wants investment to make a bigger contribution to GDP, and made moves to attract more to cut reliance on consumption.

Domestic and foreign investment combined grew 12.7 percent from a year earlier in the fourth quarter.

Despite deregulation moves, red tape remains a big hurdle and source of complaint among investors.

"We are still losing to the neighbouring countries such as the Philippines, Vietnam and Thailand," Investment Coordinating Board (BKPM) chairman Thomas Lembong said this week, adding that the government needs to keep improving the climate.

On trade, Indonesia posted a trade surplus nearly every month in 2017, and price improvements in energy-related commodities and palm oil boosted commodity exports.

However, some economists say the surpluses have reflected weak consumption, as import growth has been subdued.

Government spending has been constrained to keep down the budget deficit. Finance Minister Sri Mulyani Indrawati has pledged that constrained spending will not affect the government's infrastructure goals.


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