Indonesia's Q1 GDP growth up slightly, supported by higher commodity prices

A cart filled with textile packages at South-east Asia's largest textile wholesale center, Tanah Abang market, in Jakarta.
A cart filled with textile packages at South-east Asia's largest textile wholesale center, Tanah Abang market, in Jakarta. PHOTO: AFP

JAKARTA (REUTERS) - Indonesia's economic growth edged up in the first quarter as improving momentum in its major trading partners and rising prices for some commodities underpinned exports, but some analysts say slow credit growth is hampering prospects for a strong GDP rebound.

Southeast Asia's largest economy grew 5.01 per cent in January-March on an annual basis, the statistics bureau said on Friday (May 5), matching a Reuters poll and up slightly from the 4.94 per cent pace in the previous quarter.

The resource-rich country struggled through years of slowing growth as a plunge in commodity prices hurt everything from exports to investment and households' purchasing power.

The recovery in prices of some of its main exports, such as palm oil and coal, helped economic growth pick up to 5.02 percent last year, from 4.79 percent in 2015.

In the first quarter, exports of goods and services rose more than 8 per cent, which the head of the statistics bureau Suhariyanto attributed to rising prices of commodities like tea and shrimp. Demand was also supported by slightly better economic growth in China, the United States and Singapore - Indonesia's major trading partners.

"This is promising and in line with growth in our export partners," Suhariyanto told a press briefing accompanying the data.

Still, even as growth edged above the fourth quarter, Capital Economics described first quarter performance as"another disappointing" outcome for Indonesia.

"Looking ahead, with commodity prices likely to stay relatively depressed and credit growth set to remain weak, we expect growth to remain stuck at around 5 per cent over the next couple of years," senior Asia economist Gareth Leather said in a note.

During the first three months of 2017, growth of private consumption, which accounts for more than half of Indonesia's gross domestic product, slowed slightly, while investment remained sluggish.

But the government, which helped drag growth when it cut spending in the second half of 2016, pulled more of its weight behind GDP growth in the first quarter.

Indonesia's finance minister Sri Mulyani Indrawati told Reuters last month there will be no more spending cuts this year as revenue-collection was on track to reach the government's target.

She said part of the spending will be redirected to more productive parts of the economy, including infrastructure, to help further boost growth.

Meanwhile, the mining sector swung back to contraction after starting to grow for a few quarters. Suhariyanto partly attributed the slump to a decline in production in major mining companies like PT Freeport Indonesia and Amman Mineral Nusa Tenggara, as well as lower oil and gas output.

Improving growth in other major sectors like agriculture and manufacturing complemented the mining contraction.

Capital Economics' Leather believes the central bank is unlikely to support the economy with more rate cuts this year, having cut six times last year.

Therefore, "the slowdown in credit growth is unlikely to reverse anytime soon," he said.