Indonesia’s Economic Growth Slows to 5%, Matching Forecasts

  • Consumer spending remains strong, government outlays falling
  • Bank Indonesia unlikely to ease policy rest of year, ANZ says

Indonesia’s economy grew in line with economists’ forecasts in the third quarter as President Joko Widodo seeks to spur the nation onto a higher growth path.

Key Points

  • Gross domestic product increased 5.02 percent last quarter from a year earlier, compared with a revised 5.19 percent in the second quarter, the statistics bureau said in Jakarta on Monday.
  • The median estimate of 22 economists surveyed by Bloomberg was for growth of 5.08 percent.
  • GDP rose 3.2 percent in the third quarter from the previous three months, compared with a median estimate of 3.25 percent in a Bloomberg survey.

Chart of Indonesia’s GDP YOY since 2007 until 3Q 2016

Big Picture

Southeast Asia’s biggest economy has been undershooting the 7 percent growth target set by Widodo when he took office two years ago, mainly due to low commodity prices and weaker global demand. Jokowi, as the president is known, is seeking billions of dollars to help fund an ambitious infrastructure agenda that includes building roads, railways and seaports. He said last week the government has now set its sights on growth of more than 6 percent in 2018 and a 10 percent boost in investment. Also helping to support the growth outlook are six interest rate cuts by Bank Indonesia this year to spur spending as inflation remains inside the 3 percent to 5 percent target band.

Economist Takeaways

  • Growth is likely to remain “stuck around the 5 percent mark for the next few years,” said Oliver Jones, an economist at Capital Economics in London. “While we don’t expect growth to weaken any further, with fiscal and monetary policy unlikely to provide much more support, a significant revival also looks unlikely,” he said in an e-mail.
  • Given its aversion to market volatility, Bank Indonesia is unlikely to ease policy the rest of the year as the November and December meetings take place before the Federal Reserve meeting, said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. A potential bright spot in the economy is the recent rise in commodity prices, he said.

Other Details

  • Government spending declined 3 percent in the third quarter from a year ago, while household consumption climbed 5 percent
  • Investment rose 4.1 percent, exports contracted 6 percent and imports dropped 3.9 percent in the period
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