Indonesia posts 5% growth in Q3

Sunset over the Indonesian capital Jakarta. Indonesia's economy has been hobbled by low global commodity prices, tepid foreign investment and infrastructure bottlenecks.
Sunset over the Indonesian capital Jakarta. Indonesia's economy has been hobbled by low global commodity prices, tepid foreign investment and infrastructure bottlenecks.PHOTO: REUTERS

Lower government spending, slowdown among major trade partners a dampener

Indonesia's economy grew largely in line with market expectations in the third quarter, though lower government spending and a slowdown among its major trading partners proved a drag on growth.

Data released by the statistics bureau yesterday showed Indonesia grew 5.02 per cent in the July to September quarter from the same three-month period last year.

This was close to the median estate of 22 economists surveyed by Bloomberg News of 5.08 per cent though it was below the 5.18 per cent in the second quarter.

The results are a dampener for South-east Asia's largest economy - home to more than 250 million people - which has been striving to meet a 7 per cent growth target envisioned by President Joko Widodo when he took office two years ago. Lower commodity prices and weaker global demand have been a consistent roadblock to the target.

Statistics bureau chief Suhariyanto said a contraction in exports deepened to 6 per cent in the third quarter from the 2.73 per cent slump in the previous one, due to slowing growth in the key markets of China, Singapore and South Korea.

  • 5.02%

    Indonesia’s growth in the July to September quarter, from the samethree-month period last year. This is below the 5.18 per cent in the second quarter.

    6%

    The contraction in exports in the third quarter, deepening from the 2.73 per cent slump in the previous quarter, owing to slowing growth in key markets China, Singapore and South Korea.

    US$10b

    The budget cut announced in August by Finance Minister Sri Mulyani, for the whole of 2016.

China grew at a steady 6.7 per cent annually in the third quarter, midway between the government's goal of 6.5 to 7 per cent.

Singapore's growth came in at just 0.6 per cent year on year. South Korea grew 0.7 per cent, marginally ahead of expectations but still a tad below the second quarter.

Household spending rose 5 per cent in Indonesia, the data showed. But a reversal in government spending was a drag on the economy.

In August, Finance Minister Sri Mulyani announced a US$10.2 billion (S$14.3 billion) budget cut for the year. "She took the decision to cut government spending, to make sure the aggregate deficit for the year would not exceed 3 per cent of GDP," OCBC economist Wellian Wiranto wrote in a note. Government spending tumbled 45 trillion rupiah (S$4.75 billion) in the third quarter year on year, data showed.

LOOKING AHEAD

We hope with the trigger of (government) payment realisation and budget disbursement, it can improve slightly.

PRESIDENT JOKO, reacting to the data on Indonesia's growth yesterday.

Indonesia's economy has been hobbled by low global commodity prices, tepid foreign investment and infrastructure bottlenecks. Last year's growth of 4.8 per cent was the weakest since 2009.

President Joko is seeking billions of dollars to help fund an ambitious agenda to build roads, railways and seaports, Bloomberg reported. 

Reacting to the data yesterday, he said he hoped for a lift in the fourth quarter. "We hope with the trigger of (government) payment realisation and budget disbursement, it can improve slightly."

A total of six interest rate cuts by Bank Indonesia this year are helping spur spending as inflation remains inside the 3 per cent to 5 per cent target band.

Analysts argue that revenue collection from the government's flagship tax amnesty scheme could help cushion the economy from aggressive state spending cuts.

"The cuts in spending would continue to weigh on the fourth quarter outlook, but stabilisation of oil and commodity prices should bode well for the overall economy," UOB economist Ho Woei Chen said.

A version of this article appeared in the print edition of The Straits Times on November 08, 2016, with the headline 'Indonesia posts 5% growth in Q3'. Print Edition | Subscribe