Indonesia’s Q1 growth beats forecasts on resilient consumption

JAKARTA – Indonesia’s economy accelerated in the first quarter as the nation benefited from strong domestic consumption, even as exports took a knock from slowing global demand.

Gross domestic product rose 5.03 per cent in the three months to March from a year ago, Indonesia’s statistics office said on Friday. This was higher than the median estimate of 4.97 per cent in a Bloomberg survey of economists.

Compared with the fourth quarter of 2022, the economy shrank 0.92 per cent in the first quarter, still better than the economists’ median estimate for a 1 per cent contraction. This dip follows the seasonal pattern seen over the years, the statistics agency said.

As slowing global demand saps exports that make up about a quarter of South-east Asia’s largest economy, focus will turn to domestic consumption to shore up expansion. The Eid al-Fitr celebrations in April should help boost demand further, based on strong retail sales and improved consumer confidence.

Private consumption grew 4.54 per cent in the first quarter, accelerating slightly from 4.48 per cent in the previous quarter. It remains the largest contributor to Indonesia’s economic output, although its share has fallen to about half of GDP from close to 60 per cent in 2020, the latest data showed.

Room for rate cut

Bank Indonesia has already halted its monetary policy tightening after price pressures eased from a seven-year high. With the headline inflation rate looking set to return within the central bank’s 2 per cent to 4 per cent target band sooner than expected, some analysts see room for an extended pause or even rate cuts that could bolster growth.

Meanwhile, exports expanded 11.68 per cent in the first quarter, a much slower pace than the almost 15 per cent in the previous quarter. Resource-rich Indonesia saw lower prices for coal, palm oil, crude oil and nickel as the global commodity boom recedes.

Mr Satria Sambijantoro, an economist at Bahana Sekuritas, said outbound shipments could suffer a sharper pullback in the coming quarters as exporters tend to front-load orders in the year. Demand is also weakening amid rising recession risks in the United States and Europe.

However, Indonesia’s economy should have strong catalysts from 2024 election-related spending, which could both support domestic consumption and lure offshore funds that will strengthen the rupiah, Mr Sambijantoro said.

“Overall, Indonesia’s macro picture in 2023 appears resilient amid stagflation risks elsewhere, and there is hope for rebound in consumption and investments in the second half,” he added.

BLOOMBERG