Indonesia Growth Fails to Pick Up in Setback to Jokowi Reforms

  • Economy expands 4.92%, less than median estimate in survey
  • Disappointing growth adds to pressure for interest-rate cuts

Indonesia’s economy grew less than analysts expected in the first quarter, a setback to President Joko Widodo’s efforts to rejuvenate growth and implement reforms in Southeast Asia’s largest nation.

Gross domestic product increased 4.92 percent in the first three months of the year compared with the same period in 2015, down from a previously reported 5.04 percent in the fourth quarter, the statistics bureau said in Jakarta on Wednesday. That’s less than the 5.07 percent median estimate in a Bloomberg survey of 15 economists.

Widodo, better known as Jokowi, took office in October 2014, vowing to make it easier to do business, implement economic reforms and boost spending on infrastructure to reboot an economy hard hit by plunging prices for the country’s commodities like palm oil and coal. The economy grew 4.79 percent last year, its slowest pace since 2009.

“While the government is doing what it can to support growth, the gravitational pull of a cyclical downturn is much stronger,” Trinh Nguyen, an economist at Natixis Asia Ltd. in Hong Kong, said by e-mail. “Credit growth is slowing and households are spending less.”

Indonesian stocks extended declines after the GDP data. The Jakarta Composite Index fell 0.8 percent as of 11:52 a.m. local time after being down 0.5 percent shortly before the figures were announced. The rupiah didn’t move on the data, maintaining a 0.3 percent decline to 13,235 a dollar, according to prices from local banks.

On an annualized basis, the economy contracted for a second consecutive quarter, declining 0.3 percent from the previous three months, according to the statistics agency. Government spending plunged by half, while household expenditure increased 0.17 percent on a quarter-on-quarter basis.

Natixis is forecasting expansion of 4.9 percent for the full year, less than the government’s target of 5.3 percent.

The disappointing data may add to pressure on Bank Indonesia to follow through with more interest rate cuts following three reductions this year. The bank left its reference rate unchanged at 6.75 percent in April.

“Growth is slow, inflation is under control, there is now a big chance Bank Indonesia will cut 25 basis points across all rates this month, ” Juniman, chief economist at PT Bank Internasional Indonesia in Jakarta, said by phone. “There will be a momentum now for more monetary stimulus.”

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