Indonesia posts sluggish Q1 growth

Indonesia’s economy grew 4.92 per cent in the first quarter compared with the same period last year, down from 5.04 per cent in the fourth quarter. Despite the disappointing data, some observers are optimistic that growth will  pick up later in the
Indonesia’s economy grew 4.92 per cent in the first quarter compared with the same period last year, down from 5.04 per cent in the fourth quarter. Despite the disappointing data, some observers are optimistic that growth will pick up later in the year. PHOTO: REUTERS

Economists point to slowdown in govt spending, decline in exports

Indonesia's economy logged disappointing growth in the first three months of the year amid weak commodity prices. Other Asian economies have also announced anaemic numbers, including Singapore, Taiwan and South Korea, due to lacklustre export growth across the region.

Analysts saw the latest data, which came in below expectations, as a setback to President Joko Widodo's efforts to implement reforms and rejuvenate the economy of South-east Asia's largest nation.

Indonesia's economy grew 4.92 per cent in the first quarter compared with the same period last year, down from 5.04 per cent in the fourth quarter.

Economists said the weak showing was largely due to a slowdown in government spending and investment, and a decline in exports.

Mr Joko, widely known as Jokowi, took office in October 2014 vowing to implement economic reforms and boost infrastructure spending.

The Indonesian economy grew 4.79 per cent last year, its slowest pace since 2009.

Despite the disappointing data, some observers are optimistic that growth in the nation of 255 million people will pick up later in the year.

DBS economist Gundy Cahyadi noted that government spending slipped in the first quarter, "but I'm not worried".

"(The headline growth figure) doesn't change the tone for the rest of the year. We are still looking at a gradual recovery, although there is a risk factor depending on the pickup in the private sector," he added.

Government spending growth slowed sharply to 2.93 per cent year on year in the first quarter, from 7.31 per cent in the preceding three months, noted UOB economist Ho Woei Chen.

She said an increase in government spending and the acceleration of infrastructure projects are expected to lift growth in the second half of the year. "Our full-year growth forecast for Indonesia remains at 5 per cent," added Ms Ho.

However, Natixis senior economist Trinh D. Nguyen said there may be limited scope for higher government spending to spur growth.

"The economy is clearly tired, and there is not much fiscal room to help," she said.

The central bank has eased monetary conditions through rate cuts in a bid to spur bank lending and domestic demand, but "(the first quarter's) lacklustre economic results show that it is very difficult to fight gravity", she added.

Yesterday's growth figures came alongside data showing Indonesian consumer confidence slipped slightly last month from March, as concerns over pay caused some people to delay purchases of durable goods.

A central bank survey showed the consumer confidence index fell to 109.0 last month from 109.8 in March. A reading above 100 signals that respondents are still optimistic.

Mr Cahyadi said the lacklustre data is unlikely to have a significant immediate impact on Singapore.

"Indonesian tourism and trade figures in relation to Singapore for the first quarter were great. This (the headline figure) shouldn't impact Singapore very much," he said.

A version of this article appeared in the print edition of The Straits Times on May 05, 2016, with the headline 'Indonesia posts sluggish Q1 growth'. Print Edition | Subscribe