Indonesia’s Economic Risk Persists as Growth Slides Further

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Indonesia’s growth slowed for a second straight quarter, underlining the challenge for President Joko Widodo as he struggles to revitalize an economy expanding at the weakest pace since 2009.

Gross domestic product rose 4.67 percent in the three months ended June 30 from a year earlier, from a revised 4.72 percent the previous quarter, the statistics bureau said in Jakarta on Wednesday. That compares with the median estimate of 4.64 percent in a Bloomberg survey of 21 economists.

Widodo, known as Jokowi, remains well below his target of at least 7 percent growth during his term. His government has turned to tweaks in taxes and regulations in an effort to revive the economy as state spending falls behind, domestic consumption and foreign investment remain weak, and commodities exports slump.

“Lower commodity prices, which have led to a slump in export revenue and a sharp deterioration in Indonesia’s terms of trade, will continue to weigh on the economy,” Gareth Leather, Asia economist at Capital Economics Ltd., said in a note after the report. “If, as we expect, there is no improvement in the second half of the year, pressure on the central bank to reduce interest rates will build.”

Investment Slows

Investment grew 3.6 percent last quarter from a year earlier, sliding from 4.3 percent the previous three months. Government spending also slowed, rising 2.3 percent from a year earlier compared with 2.7 percent in the first quarter.

“There’s no export growth anywhere in the world, so countries need to rely on domestic spending to boost GDP,” Tim Condon, head of Asia research in Singapore at ING Groep NV, said before the data. “But I think until they get interest rates down, it’s going to be a year of consolidation for Indonesia.”

A weakening rupiah has curbed room for the central bank to loosen monetary policy. Bank Indonesia has kept borrowing costs steady after joining global counterparts in a February easing.

The rupiah fell 0.2 percent against the dollar to 13,513 as of 12:11 p.m. in Jakarta, according to prices from local banks. It is the second-biggest loser this year among 11 Asian currencies tracked by Bloomberg.

The economy grew 3.78 percent from the previous quarter, compared with the median forecast for a 3.74 percent gain. It recovered from a contraction in the first quarter.

While Indonesia’s year-on-year growth “is still slow,” a pickup could emerge in the second half as the government accelerates spending, said Wai Ho Leong, an economist at Barclays Plc in Singapore.

“So they paused public spending in the first quarter and it’s been slow to come back but it will come back strongly in the third quarter,” he said. The government has been moving quite fast recently to issue public tenders, he said.

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