Indonesia's Economy Improves Slightly as Exports Pick UpBy and
GDP growth is faster than most economists had estimated
Central bank’s neutral rate bias probably remains intact
Indonesia’s economy grew slightly better than expected last quarter, supported by a pick-up in exports while consumer spending continued to disappoint. Stocks and the currency pared losses.
Despite an aggressive run of monetary policy easing, consumer spending growth was little changed at about 5 percent last quarter. And while the economy’s expansion was the fastest since 2016, risks are rising, including higher interest rates in the U.S., which could worsen financial market volatility.
"It’s not enough for Indonesia," said David Sumual, chief economist at PT Bank Central Asia in Jakarta. "We need more than 5.2 percent, about 5.5 percent, to create the jobs that are needed. The government has some homework to do to figure out what must be done to get people spending.”
Government spending rose 3.8 percent in the fourth quarter from a year earlier, investment increased 7.3 percent while exports strengthened 8.5 percent.
Retail sales grew just 2.6 percent in December compared to a year earlier. With spending by businesses and consumers making up about half of Indonesia’s GDP, sluggish demand is set to remain a problem for President Joko Widodo, who has targeted growth of 7 percent.
The Jakarta Composite Index pared losses to 0.6 percent after being down as much as 1.6 percent before the data was released. The rupiah fell 0.5 percent to 13,525 per dollar as of 4:15 p.m. in Jakarta.
Finance Minister Sri Mulyani Indrawati expects a pick-up in growth this year as global trade strengthens. The central bank on Monday reiterated its growth forecast of 5.1 percent to 5.5 percent for this year.
“The lack of confidence, especially among mid- to high-income people who put a brake on their spending, is expected to improve as economic activities recover this year,” Assistant Governor Dody Budi Waluyo said in Jakarta. Higher spending on capital investment and social assistance this year will help boost incomes, he said.
What Our Economists Say...Indonesia’s expansion is showing signs of better traction, reducing the likelihood of further rate cuts by the central bank.
-- Tamara Henderson, Bloomberg Economics
Josua Pardede, an economist at PT Bank Permata in Jakarta, said the ongoing recovery in the global economy, particularly in China, the U.S. and Japan, had contributed to the improvement in exports.
“There are still concerns about private consumption, which is still below 5 percent, although this was offset by exports, investment and government spending,” he said.
Bank Indonesia has signaled the end of policy easing after 200 basis points of interest rate relief over the past two years. Governor Agus Martowardojo said last month that the benchmark rate of 4.25 percent is in line with efforts to maintain economic stability and boost the economic recovery.
— With assistance by Manish Modi, Harry Suhartono, Yudith Ho, Eko Listiyorini, and Cecilia Yap