Indonesia clocks 4.73% growth in third quarter

Sales staff waiting for customers in a store at a mall in Jakarta. Policies by the Indonesian government to kick-start the economy supported public consumption but had only a marginal impact on near-term growth.
Sales staff waiting for customers in a store at a mall in Jakarta. Policies by the Indonesian government to kick-start the economy supported public consumption but had only a marginal impact on near-term growth.PHOTO: AGENCE FRANCE-PRESSE

Rise less than expected; slow household spending, weaker export demand to blame

Indonesia's economy expanded slightly less than expected in the third quarter on the back of slow household spending and weaker export demand.

The 4.73 per cent year-on-year growth in the three months to Sept 30 was marginally better than the previous quarter's expansion of 4.67 per cent, but missed market expectations of 4.8 per cent, underscoring challenges to the Indonesian government's efforts to get the economy up and running.

Analysts believe the disappointing data, coupled with easing inflation and a recovering rupiah, will mean that a rate cut by the central bank is more likely, especially after comments by US Federal Reserve chairman Janet Yellen on the likelihood of a hike next month in its interest rates.

"Even though growth appears to be turning up as we speak, there is nonetheless the sense that the Indonesian economy could do with a more forceful boost, especially compared with its performance in the previous years," OCBC economist Wellian Wiranto said in a note yesterday. He added that an interest rate cut by Bank Indonesia - which holds its policy meeting on Nov 17 - was not expected before next year.

President Joko Widodo's government has announced at least five rounds of policy packages in recent months to kick-start the sluggish economy.

The packages, which deployed 50.9 trillion rupiah (S$5.1 billion) of capital spending in the third quarter, supported public consumption but had only a marginal impact on near-term growth.

"Public spending is ramping up, but is not reaching the economy fast enough to boost growth," said Mr Leong Wai Ho, Barclays' economist in Singapore.

A slowdown in China has also affected commodity exports.

"The lack of external demand and the slowdown in China's economy will constrain any growth recovery in Indonesia for the rest of the year," said UOB economist Ho Woei Chen, forecasting a 4.8 per cent full-year growth before the economy starts picking up next year to 5.4 per cent.

Meanwhile, Chief Economy Minister Darmin Nasution announced another round of stimulus to accelerate growth.

Investors will get a tax holiday of between 20 per cent and 100 per cent for up to 25 years in special economic zones. One of the incentives is the exemption of value-added tax for companies importing raw materials in the zones.

A version of this article appeared in the print edition of The Straits Times on November 06, 2015, with the headline 'Indonesia clocks 4.73% growth in third quarter'. Print Edition | Subscribe