Indonesia’s Growth Beats Estimates as Rebound Seen Faltering

Indonesia’s economic growth unexpectedly quickened last quarter after an export rebound, an acceleration that may be short-lived as higher interest rates weigh on domestic consumption and investment.

Gross domestic product rose 5.72 percent in the three months ended Dec. 31 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That beat all estimates in a Bloomberg News survey of 25 economists, where the median was 5.34 percent. The economy grew 5.78 percent in 2013.

Central bank Governor Agus Martowardojo embarked on the country’s most aggressive rate-tightening cycle in eight years within a month of taking the helm in May to shore up the rupiah and damp price pressures. The expansion in 2013 was the least in four years, and analysts from Credit Suisse Group AG to Barclays Plc predict it will weaken further in 2014.

“Despite today’s upside surprise, we maintain our view that Indonesia’s growth will slow further in the coming quarters, as the impact of Bank Indonesia’s policy tightening weighs on credit growth and, in turn, GDP growth,” said Prakriti Sofat, an economist at Barclays in Singapore. GDP may expand 5 percent this year, she said.

The rupiah was little changed at 12,190 per dollar as of 3:12 p.m. in Jakarta, prices compiled by Bloomberg from local banks show. The currency was Asia’s worst performer in 2013 as it plunged 21 percent against the dollar.

Fuel Subsidies

Indonesia’s GDP fell 1.42 percent last quarter from the previous three months, when it expanded a revised 3.07 percent. That compared with a median estimate for a 1.69 percent contraction in a Bloomberg survey.

Exports climbed a more-than-estimated 10.3 percent in December, leading to a $1.5 billion trade surplus that was the highest since November 2011, data showed. Exports may have picked up ahead of a Jan. 12 ban on shipments of mineral ores from the world’s top producer of mined nickel and tin.

“The risk is that mining companies have brought forward exports in anticipation of the ban,” said Robert Prior-Wandesforde, a Credit Suisse economist in Singapore. “Although the government eventually watered down the ban, officials from the main mining companies have been quoted as saying that confusion surrounding the government’s regulatory regime and tax policy led them to stop exporting altogether in January.”

Election Spending

While the outlook for exports remains mixed, projects to reduce the risk of flooding and improve infrastructure, and elections this year may support Indonesia’s growth in coming quarters. Government spending rose significantly last quarter, especially on goods and to deal with disasters, Sri Soelistyowati, a director at the statistics office, said today.

Household consumption increased 5.25 percent in the fourth quarter from a year earlier, investment rose 4.37 percent and government spending climbed 6.45 percent, today’s report showed. Domestic consumption accounted for 55.8 percent of full-year GDP, about a percentage point higher than 2012, while the contribution from investment dropped to about 31.7 percent.

Indonesia’s consumer confidence rose in January to the highest level in a year, according to a survey by Jakarta-based Danareksa Research Institute released this month.

Underlying Support

“Private consumption growth has picked up pace in the second half of 2013 and likely to remain strong ahead of the elections this year,” said Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore, referring to parliamentary and presidential elections scheduled for April and July. “Robust private consumption growth is the underlying positive for GDP growth potential in the near and medium term.”

Bank Indonesia has predicted economic growth this year will be at the lower end of its target range of 5.8 percent to 6.2 percent. Standard Chartered Plc sees “upside risk” to its forecast for GDP growth of 5.8 percent in 2014, Jakarta-based economist Eric Alexander Sugandi said today.

The central bank kept interest rates unchanged for a second straight meeting in January. Policy makers next meet on Feb. 13.

Inflation has remained above 8 percent for the past seven months as the government cut fuel subsidies that account for about one-tenth of its expenditure.

Anton Gunawan, the best overall forecaster for the Indonesian economy in two years through 2013 according to a Bloomberg Rankings analysis of estimates, expects Bank Indonesia to keep the reference rate unchanged at 7.5 percent this month.

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