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Indonesia’s Economic Growth Exceeds 6% as Investment Climbs

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Nov. 5 (Bloomberg) -- Indonesia’s economic growth held above 6 percent for an eighth quarter as domestic consumption and rising investment countered an export slump, reducing the need for the central bank to cut interest rates.

Gross domestic product rose 6.17 percent in the three months ended Sept. 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a 6.37 percent gain in the second quarter, and matched the median estimate of 16 economists surveyed by Bloomberg News.

Policy makers in Southeast Asia’s biggest economy have avoided adding to a February rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports to improve infrastructure and meet a growth target of an average 6.6 percent by the end of his second term in 2014.

“Indonesia remains resilient compared with other emerging countries,” Edimon Ginting, a deputy country director at the Asian Development Bank’s Indonesian resident mission based in Jakarta, said in a telephone interview. “We expect growth to improve slightly in the fourth quarter to bring 2012 growth to 6.3 percent to 6.4 percent, as the negative impact of declining exports experienced in the first three quarters will wind down gradually, and the government boosts infrastructure spending.”

Rate Decision

Indonesia’s 7 percent government bonds maturing in May 2022 extended their gains after the report, pushing the yield down one basis point today, or 0.01 percentage point, to 5.62 percent as of 2:17 p.m. in Jakarta, prices from the Inter Dealer Market Association show.

The rupiah weakened 0.2 percent to 9,630 per dollar. It has fallen more than 6 percent this year, the biggest decline among 11 most-traded Asian currencies tracked by Bloomberg. The Jakarta Composite index slid 0.8 percent as of 2:17 p.m., paring its gain for the year to 13 percent.

Bank Indonesia will probably keep its benchmark interest rate at 5.75 percent on Nov. 8, according to all 16 economists surveyed by Bloomberg News. The rupiah’s decline this year has boosted import costs and helped push inflation to a 13-month high in October, reducing the scope for monetary easing.

“The rupiah’s weakness will likely deter near-term rate cuts,” Fred Gibson, an economist at Moody’s Analytics in Sydney, said before the report. “Higher government spending over the last year has curbed the need for aggressive monetary stimulus measures, a trend that should persist unless global economic conditions deteriorate.”

Exports Slump

Indonesia’s exports fell 9.4 percent in September from a year earlier, a report showed last week, a sixth straight month of declines. Consumer prices climbed 4.61 percent in October from a year earlier.

“In the future we expect the global crisis to remain and that will hurt Indonesian exports even though in August and September we saw trade surpluses,” Suryamin, chairman of the statistics office, said in a briefing today. “The economy was mainly supported by the domestic market.”

Private consumption increased 5.7 percent in the third quarter from a year earlier, and investment surged 10 percent. Exports slid 2.8 percent, today’s data showed. Domestic consumption accounted for 63 percent of GDP, investment contributed 33.2 percent, while net exports deducted 0.61 percent from the economy.

Investment Outlook

“Growth in the second half will be slower than the first half,” said Prakriti Sofat, a Singapore-based regional economist at Barclays Plc., who expects the central bank to keep its benchmark rate and interest-rate corridor unchanged. “We believe investment momentum in the economy is slowing, evident in the export-oriented mining sector.”

Domestic investment in the third quarter climbed 33 percent and foreign direct investment advanced 22 percent from a year earlier, government data showed last month.

The manufacturing Purchasing Managers’ Index climbed to 51.9 from 50.5 in September, HSBC Holdings Plc and Markit Economics said last week, and local demand has boosted company revenues. PT Bank Mandiri, the country’s biggest lender by assets, posted a 39 percent jump in third-quarter profit to the highest level in at least nine years.

“Expansion remains robust as investment and domestic demand increased,” Arga Samudro, an economist at PT Bahana Securities in Jakarta, said before the report. “We don’t expect the central bank will change its interest rate.”

To contact the reporters on this story: Novrida Manurung in Jakarta at nmanurung@bloomberg.net; Hidayat Setiaji in Jakarta at hsetiaji@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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