News ID: 252414
Published: 1027 GMT May 06, 2019

Indonesia Q1 GDP growth misses forecast as investment cools

Indonesia Q1 GDP growth misses forecast as investment cools

Indonesia’s economy expanded more slowly than expected in the first quarter of this year, as investment dropped ahead of elections and campaign spending failed to sustain growth momentum.

Southeast Asia’s largest economy grew 5.07 percent in January-March from a year earlier, the slowest pace in a year, data from the statistics bureau showed on Monday, Reuters reported.

A Reuters poll had expected gross domestic product growth of 5.18 percent, in line with fourth-quarter expansion.

Alongside soft investment, cooling household consumption, which accounts for more than half of the economy, also contributed to the slowdown, the bureau said.

Analysts had expected campaign spending and logistical preparations ahead of the world’s biggest single-day election on April 17 to cushion weaker investment and exports.

President Joko Widodo won a second term in office based on sample counts from private pollsters, though his opponent Prabowo Subianto has also claimed victory. Official results are due by May 22.

Indonesia’s rupiah 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. The benchmark stock index extended its fall slightly.

“The stimulus from election-related spending was not as strong as we had initially expected,” said Satria Sambijantoro, an economist with Bahana Sekuritas, labeling growth ‘a relative underachievement’ considering the election bump.

Still, DBS analyst Masyita Crystallin said growth had held up relatively well given the broader global economic slowdown.


Unwinding interest rates hikes


Some economists said Bank Indonesia (BI) was unlikely to immediately respond by cutting interest rates, noting BI had signaled it would wait until the current account deficit narrows.

BI last year raised rates 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 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.

There are also calls for President Widodo to take bolder steps to boost GDP with annual growth falling short of his seven percent growth target in his first term, having stalled at around five percent.

“The government needs to provide a policy incentive to improve the investment climate and at the same time support exports,” said Josua Pardede, an economist at Bank Permata.

The government’s growth target for 2019 is 5.3 percent, while the central bank has forecast a range of 5.0 percent to 5.4 percent.

The statistics bureau said election-related spending, which includes events by political parties and promotion materials such as flags and banners, boosted sectors like textile, which saw orders rise in January-March.

Household consumption on items such as food, health and education also remained relatively strong, but the high price of airline tickets slowed spending on travel.

The presidential and parliamentary elections postponed decisions on investment with annual growth decelerating to five percent from six percent in the previous three months.

“For us, there is one big takeaway from the 1Q GDP print. Indonesia’s investment cycle has slowed sharply,” Joseph Incalcaterra, an economist at HSBC said in a note.

At the same time, Indonesia’s coal and oil refinery industries were squeezed by weaker prices.

On the trade front, however, net exports supported GDP growth in the first quarter — the first positive contribution in five quarters, as imports fell faster than exports.

HSBC said it expects GDP growth this year to slow to five percent, from 5.2 percent in 2018, largely due to weaker public investment, which may only rebound in 2020.



Resource: Reuters
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