Indonesia’s Economy Grows Less Than Forecast on Spending Cut

  • Economic expansion slows for second straight quarter
  • Growth seen around 5% for next two years: Capital Economics

Workers move bags of cement into a ship in Jakarta.

Photographer: Dimas Ardian/Bloomberg

Indonesia’s economy expanded less than forecast in the fourth quarter as government spending was curbed by a legal cap on the fiscal deficit.

Key Points

  • Gross domestic product rose 4.94 percent in the fourth quarter from a year earlier, the statistics bureau said in Jakarta on Monday; median estimate of economists was for 5 percent growth
  • GDP declined 1.77 percent in the fourth quarter from the previous three months; economists expected a contraction of 1.8 percent
  • The economy grew 5.02 percent in 2016, matching forecasts; growth for 2015 was revised to 4.88 percent from 4.79 percent
  • Government spending fell 4.05 percent in fourth quarter from a year earlier while household consumption grew 4.99 percent

Big Picture

Southeast Asia’s biggest economy is still undershooting President Joko Widodo’s growth target of 7 percent amid a slowdown in China and lower commodity prices. That’s even after the central bank cut rates six times last year in a bid to boost lending and growth. While the economy is expected to pick up this year, with the International Monetary Fund forecasting 5.1 percent growth, the government is warning of headwinds from global uncertainty, including from policies being introduced by U.S. President Donald Trump.

Economist Takeaways

  • The recent rise in commodity prices has provided a strong terms-of-trade tailwind, said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. “This, along with a stabilization in domestic demand, has mitigated the negative impact that fiscal spending cuts -- needed to minimize fiscal slippage in 2016 -- have on Q4 growth.”
  • The data is disappointing with growth now expected to remain stuck at about 5 percent over the next couple of years as policymakers run out of scope for further stimulus, said Gareth Leather, senior Asia economist at Capital Economics Ltd. in London. “The upshot of all this is that while growth is unlikely to slow further, we don’t expect it to accelerate either,” Leather said.
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