Indonesia's GDP growth slows in Q3 amid weaker exports

JAKARTA • Indonesia's economic growth slowed in the third quarter, losing momentum from the previous three months and pointing to tougher conditions for the South-east Asian economy, which has struggled with capital outflows and weaker exports and household spending.

Gross domestic product (GDP) expanded 5.17 per cent in the July-September quarter from a year earlier, the statistics bureau said yesterday, compared with a 5.15 per cent expansion expected in a Reuters poll and the second quarter's 5.27 per cent. The April-June quarter's pace was the fastest since late 2013.

The slowdown was largely due to softer household consumption in the third quarter and a negative contribution from foreign trade.

Although the expansion was a notch faster than expected, economists warn that growth may weaken further. "We think growth will tend to be slower in the coming future due to the impact of the weakening rupiah," said Jakarta-based chief economist Fakhrul Fulvian of Trimegah Securities. He expects GDP to grow 5.13 per cent this year and 5 per cent next year.

The rupiah is down around 9 per cent this year, making it the second-worst performing currency among emerging Asian markets.

Though a weaker currency has not stoked inflation, the central bank has raised interest rates five times since May to slow capital outflows in a measure analysts say could dampen domestic demand.

Capital Economics emerging Asia analyst Alex Holmes said growth will probably stay at around 5 per cent over the next couple of years.

"A key drag on growth over the next year is likely to be the export sector," he said in a note, adding that weaker global growth and subdued commodity prices could hold back export revenues.

Weaker coal and palm oil prices have been a drag on Indonesia's exports, with the fall in the rupiah unable to offset the hit to revenues from the softer commodity prices.

The export sector's contribution to GDP in the third quarter was wiped out by imports. Indonesia's statistics bureau chief Suhariyanto blamed this on declining non-oil and gas commodity prices as well as slower growth in main trading partners like China and Singapore.

Stronger investment and government spending also failed to mitigate slowing household consumption, which accounts for more than half of Indonesia's GDP.

While a trade war between the United States and China is expected to hurt economic growth in the region, most analysts say Indonesia, which is less integrated into global production supply chains than its regional peers, will not be among the worst hit. The trade war, however, could pressure Indonesia's economy through its financial markets.

In addition to Bank Indonesia's rate hikes, the government has delayed infrastructure projects and raised tariffs for a wide range of consumer goods, which could hurt growth. Barclays economist Rahul Bajoria said tighter fiscal policy next year also clouds growth outlook.

While the government's official GDP growth target this year is 5.4 per cent, Finance Minister Sri Mulyani Indrawati last month told Parliament that this year's growth was more likely to be 5.14 per cent. The government projects growth at 5.3 per cent for next year.

REUTERS

A version of this article appeared in the print edition of The Straits Times on November 06, 2018, with the headline 'Indonesia's GDP growth slows in Q3 amid weaker exports'. Print Edition | Subscribe