Indonesia’s Economy Grows at Slowest Pace in Over Two Years

Indonesia’s economy grew at the slowest pace in more than two years last quarter as an export slump countered gains in domestic consumption, increasing pressure on policy makers to add stimulus to bolster growth.

Gross domestic product increased 6.11 percent in the three months through December from a year earlier, the Central Bureau of Statistics said in Jakarta today, compared with a revised 6.16 percent for the third quarter. The median of 20 economists surveyed by Bloomberg News was 6.2 percent. The economy grew 6.2 percent in 2012.

Slowing growth may compound challenges for an economy that is already contending with a weakening rupiah, declining exports and a widening current account deficit. While a global recovery is brightening the outlook for Asia, President Susilo Bambang Yudhoyono faces growing pressure to raise fuel prices and curb oil imports as currency risks persist and the window to act narrows ahead of elections due in 2014.

“For sustainable growth, Indonesia can’t only depend on household consumption,” said Eric Alexander Sugandi, a Jakarta-based economist at Standard Chartered Plc. “Exports may recover in the second half of the year,” he said, adding that he expects the economy will expand 6.5 percent this year.

The rupiah ended two days of gains to decline 0.2 percent to 9,683 per dollar as of 1:48 p.m. in Jakarta, prices from local banks compiled by Bloomberg show. The benchmark Jakarta Composite index slipped 0.4 percent.

Fuel Subsidies

Vice President Boediono last month forecast a fall in exports this year amid an uneven global recovery. Exports dropped 6.6 percent in 2012, contributing to a trade deficit of $1.63 billion last year.

Bank Indonesia will probably keep interest rates unchanged at a record-low 5.75 percent when policy makers meet Feb. 12, according to all 13 economists surveyed by Bloomberg News. The central bank last lowered rates in February 2012 and has avoided adding to the reduction to bolster a currency that was among the worst performers in Asia last year.

The rupiah weakened as the nation’s current account remained in deficit. Fuel subsidies that keep charges below international market rates have bolstered demand for energy imports in the world’s fourth most-populous nation, contributing to the widening current-account gap.

“Indonesia needs to improve its balance of trade to boost the economy,” Suryamin, Chairman of the statistics office, said today. “We expect the economy to grow faster this year as there are many infrastructure projects that will be built this year.”

Government Spending

Indonesia missed its 2012 budget deficit target amid lower-than-expected government expenditure, underscoring Yudhoyono’s challenge to sustain one of Asia’s fastest growth rates with spending on roads, ports and bridges. The government seeks expansion of 6.5 percent to 6.8 percent this year, and sees challenges in maintaining budget spending amid high subsidies, Finance Minister Agus Martowardojo said today.

Private consumption increased 5.36 percent in the fourth quarter from a year earlier, while investment rose 7.29 percent and government spending fell 3.34 percent. Domestic consumption accounted for 63.45 percent of full-year GDP, investment contributed 33.16 percent, while net exports deducted 1.55 percent from the economy, today’s data showed.

“Indonesia’s growth momentum in 2012 has been led by its robust investment growth,” said Gundy Cahyadi, an economist at Oversea-Chinese Banking Corp. in Singapore. “It is crucial to see this strong investment growth sustain in 2013.”

Low interest rates and an expanding economy have boosted earnings at lenders such as PT Bank Rakyat Indonesia, the country’s second-largest by assets, which reported 2012 profit that beat analyst’s estimates. PT Lippo Karawaci, Indonesia’s largest publicly-traded real estate developer by assets, plans to build more shopping malls and hospitals in cities beyond Jakarta to capitalize on an expanding middle class.