News ID: 265231
Published: 0731 GMT February 05, 2020

Indonesia’s growth slows to four-year low, adding to rate-cut calls

Indonesia’s growth slows to four-year low, adding to rate-cut calls
Vehicles sit in traffic during rush hour in Jakarta, Indonesia. (MUHAMMAD FADLI/BLOOMBERG)

Indonesia’s economy expanded at its weakest pace in four years in 2019, opening the door for additional interest-rate cuts as the nation braces for the impact of a spiraling coronavirus crisis.

Gross domestic product rose 5.02 percent last year, broadly in line with the 5.04 percent forecast in a Bloomberg survey of economists, according to data released Wednesday. Fourth-quarter growth of 4.97 percent was the slowest since late 2016, below the median estimate of five percent in the survey, Bloomberg reported.​

 “We continue to maintain our view that domestic demand has been weak, and we see little impetus for it to turn around meaningfully,” said Mohamed Faiz Nagutha, an economist with Bank of America Securities in Singapore. “As such, policy support — from both fiscal and monetary sides — remains appropriate.”

He expects the central bank to cut interest rates by 50 basis points this year. Bank Indonesia lowered its key rate four times since July, and left it unchanged last month.

Speaking at another venue Wednesday, Bank Indonesia Governor Perry Warjiyo pledged to maintain an accommodative stance this year and said easing would not be limited to lowering the benchmark rate.

Manufacturing was under pressure throughout last year, Suhariyanto, head of the government statistics agency, told reporters Wednesday. Exports contracted 0.39 percent in the fourth quarter from a year ago, and 0.87 percent for the full year.

Growth in consumer spending, which makes up 57 percent of the economy, slowed to 4.97 percent in the fourth quarter, while government expenditure slowed to 0.48 percent. Investment growth declined to 4.06 percent.

“Growth is uninspiring, especially if you compare with peers like the Philippines,” said Euben Paracuelles, an economist at Nomura Holdings Inc. “This should support the case for BI to more than maintain an accommodative stance and eventually cut its policy rate, especially with still limited signs the government is making budget revisions with some meaningful fiscal stimulus.”

The government is projecting growth of 5.3 percent this year, but officials say there are downside risks to the forecast because of the coronavirus crisis.

“While domestic consumption has been a bulwark to stabilize things, if Indonesia does not boost investment soon, sub-five percent growth in 2020 cannot be ruled out,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore.

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