Indonesia's GDP expanded slower than expected in Q1

Bank Indonesia last year raised its key interest rate six times by 175 basis points to defend the rupiah, making it one of Asia's most aggressive central banks, amid growing pressure from US interest rate hikes and a ballooning current account gap.
Bank Indonesia last year raised its key interest rate six times by 175 basis points to defend the rupiah, making it one of Asia's most aggressive central banks, amid growing pressure from US interest rate hikes and a ballooning current account gap.PHOTO: BLOOMBERG

JAKARTA • Indonesia's gross domestic product (GDP) grew more slowly than expected in the first quarter, as investment dropped and prices of its main commodities softened, data from the statistics bureau showed yesterday.

South-east Asia's largest economy expanded 5.07 per cent in the January-March period from a year earlier, the slowest pace in a year. A Reuters poll had expected growth of 5.18 per cent, in line with fourth-quarter expansion.

The statistics bureau attributed the weaker growth to soft investment while household consumption, which represents more than half of the economy, also lost momentum and slowed slightly.

Analysts in the poll had expected spending related to presidential and parliamentary elections to cushion the weaker performance of investment and exports.

Indonesia's rupiah and benchmark stock index showed little reaction to the data, but had slipped ahead of the release on concerns over a fresh deterioration in the US-China trade dispute.

Despite missing expectation, Ms Masyita Crystallin, an economist at DBS Bank, described the data as "pretty good, considering pressure from external factors", noting that other world economies were also growing more slowly.

  • 5.07 %

    How much South-east Asia's largest economy expanded in the January-March period from a year earlier, the slowest pace in a year.

  • 5.0 %

    Annual investment growth in January-March, down from 6 per cent in the previous three months.

Ms Crystallin expects Bank Indonesia (BI), the central bank, to resist cutting interest rates for now, at least until it sees a narrowing of Indonesia's current account deficit.

"There is room to cut, but I think BI will consider the strong pressures on the trade balance and the rupiah," she said.

Mr Fakhrul Fulvian, an economist at Trimegah Securities in Jakarta, said that with economic and investment growth slowing, the current account deficit should shrink this year.

BI last year raised its key interest rate six times by 175 basis points to defend the rupiah, making it one of Asia's most aggressive central banks, amid growing pressure from US interest rate hikes and a ballooning current account gap.

Some analysts have argued that BI has room to unwind these hikes to support economic growth this year, as the US turns more dovish with its monetary policy and Indonesia's inflation stays near the lower end of BI's target range.

In January-March, annual investment growth slowed to 5 per cent, from 6 per cent in the previous three months.

On the trade front, net exports supported GDP growth in the first quarter, as imports fell faster than exports.

The official government growth target for 2019 is 5.3 per cent, while the central bank has forecast a range of 5.0-5.4 per cent.

REUTERS

A version of this article appeared in the print edition of The Straits Times on May 07, 2019, with the headline 'Indonesia's GDP expanded slower than expected in Q1'. Print Edition | Subscribe