Indonesia economy grows 5.01% in Q2, less than expected

JAKARTA (REUTERS) - Indonesia's annual economic growth grew more slowly than expected in the second quarter, with growth in some key sectors slowing and pivotal private consumption remaining sluggish.

Southeast Asia's largest economy grew 5.01 per cent in April-June from a year earlier, slower than expected and unchanged from the first quarter's pace.

"The recovery is ongoing, just at a slower pace than we have previously expected," said Gundy Cahyadi, an economist at DBS Bank. "Overall, we now see more downside risks to our 2018 GDP growth forecast of 5.4 per cent, even if we maintain our 2017 GDP growth forecast at 5.1 per cent for now," Cahyadi said.

Indonesia has been struggling to accelerate growth meaningfully to create jobs and improve the livelihood of its 250 million population. Many analysts say a 5 per cent growth rate is not enough.

President Joko Widodo promised to revive growth to 7 per cent during his five-year term, which will end in 2019. This year, he had to settle for a 5.2 per cent growth target.

Private consumption, which accounts for more than half of Indonesia's gross domestic product, expanded slightly faster in the second quarter compared to the first quarter, but grew more slowly against a year ago.

Suhariyanto, the head of the statistics bureau, told a news conference on there was a slowdown in growth of debit transactions, which could indicate "people psychologically holding back spending to see what's going on in the global economy".

By sector, growth in trade also slowed, which Suhariyanto attributed to "a slowdown in domestic goods production and supply of imported goods". Growth in manufacturing and agriculture sector also cooled.

The benchmark stock index showed little reaction to the data and maintained a 0.5 per cent gain, and the rupiah was also little moved.

Ahead of the data announcement, Bank Indonesia Governor Agus Martowardojo flagged a possibility of monetary policy easing to add to a host of measures the central bank has taken to try to stimulate demand.

BI last year cut its benchmark rate six times, to 4.75 per cent, and eased lending rules.

The government has obtained parliamentary approval to increase spending this year, including on infrastructure, which should aid growth in coming quarters.

But it remains to be seen if the economy would respond to more fiscal and monetary stimulus.