Commodity export boom keeps Indonesia on growth path but price pressures loom

The first-quarter numbers put the nation on track to hit its full-year growth target of 4.8 per cent-5.5 per cent. PHOTO: REUTERS

JAKARTA (REUTERS) - A historic rise in commodity prices and reopening of the economy from Covid-19 curbs helped Indonesia stay on a recovery path in the first quarter, but analysts say headwinds are growing from global monetary tightening and the war in Ukraine.

South-east Asia’s largest economy grew 5.01 per cent in January-March from a year earlier, a fourth straight quarter of expansion. That compared with 5 per cent forecast by analysts in a Reuters poll and 5.02 per cent growth in the October-December quarter.

A recovery in consumption, investment and exports underpinned growth, while surging prices of global commodities such as coal, palm oil and nickel also contributed to record high trade surpluses for Indonesia, a major supplier of these resources. Indonesia posted US$9.33 billion (S$13 billion) trade surplus in the first quarter.

Covid-19 restrictions imposed earlier in the year, which have now been lifted, led to a strong pick-up in economic activities and spending, including travel, Dr Margo Yuwono, head of Indonesia’s statistics bureau, told a news conference.

Consumption, which accounts for more than half of gross domestic product, grew 4.34 per cent in the first quarter, up from 3.55 per cent in the fourth quarter of last year.

On a quarterly basis, however, economists highlighted that growth momentum had slowed and cited geopolitical concerns among other factors that could hamper growth.

“Several global risks that will affect the national economic recovery include geopolitical risks, China’s economic slowdown and rising global inflation that has prompted tightening of global monetary policy,” said Bank Permata economist Josua Pardede.

Bank Indonesia (BI), which has pledged to keep interest rates at record lows until it sees signs of pressure on core inflation, intends to review its plans to normalise monetary policy in May to June, and assess any risks to the inflation outlook if the government changes energy prices and subsidies.

It had previously said interest rate levels would be reviewed only in the third quarter.

Bank Mandiri economist Faisal Rachman said that if inflation is not controlled and affects people’s purchasing power, it may force BI to raise rates sooner than projected.

Annual consumer prices rose 3.47 per cent last month from a year earlier, the highest since 2017. The central bank aims to control inflation between 2 per cent and 4 per cent this year.

Mr Josua added that inflation could reach 4 per cent if the government makes adjustment to some fuel prices and electricity tariffs.

Indonesia’s palm oil export ban, imposed from April 28 to control domestic prices of cooking oil “could hold back the recovery if it remains in place for a long time”, Capital Economics’ Gareth Leather said.

Indonesia’s central bank last month lowered its economic growth outlook for the year to 4.5 per cent to 5.3 per cent, from 4.7 per cent to 5.5 per cent previously, citing slower global growth and disruptions to trade.

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