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Indonesia’s quarterly economic growth slows
JAKARTA: Indonesia’s economic growth pace in January-March fell slightly from the previous quarter, reflecting still-weak consumption and indicating the government may struggle to meet its 2018 growth target.
The rupiah currency slipped to its weakest level since January 2016, at mid-afternoon trading at 13,980 to the dollar.
The tepid growth rate could put the central bank in a bind at its May 16-17 policy meeting. Its governor has said Bank Indonesia (BI) could raise rates to halt further rupiah depreciation if that threatened the inflation target or financial stability.
President Joko Widodo had promised to lift gross domestic product (GDP) growth to 7% during his five-year term, which ends next year, by inviting investment and cutting reliance on consumption as a growth engine.
But despite moves to build infrastructure, streamline regulations, attract investors, keep prices stable and 200 basis points of cuts in BI’s policy rate, the annual economic growth has stayed close to 5 percent for years.
Last year’s 5.07% clip was the best since 2013. The government is targeting 5.4% growth this year.
In January-March, South-East Asia’s largest economy expanded 5.06% on an annual basis, the statistics bureau said yesterday, weaker than the previous quarter’s 5.19% and a Reuters poll forecast of 5.18%.
“The combination of weaker headline GDP growth as well as stable CPI inflation in April suggests that a BI rate hike at its next meeting is not a done deal,” said Euben Paracuelles, an analyst at Nomura in Singapore, referring to last month’s 3.41% annual inflation.
Taye Shim, head of research at Mirae Asset Sekuritas, said a softer rupiah could challenge growth prospects.
A weak currency could pressure finances of companies with high levels of foreign debt or those reliant on imported raw materials.
BI’s next policy meeting will be the last under governor Agus Martowardojo. Incoming governor Perry Warjiyo has previously vowed to support growth while maintaining stability.
ANZ said BI has room to keep its key rate unchanged before starting a hiking cycle in 2019’s second half.
The statistics bureau said near 8% t annual growth in investment in January-March was “very significant”, though consumption once again lagged.
Private consumption, which accounts for over half of GDP, expanded just below 5%, a fraction under the previous quarter’s pace.
Weak consumption has been a key factor weighing on growth and the government has announced price control measures on basics such as fuel and rice aimed at keeping inflation low and purchasing power high.
Leo Putra Rinaldy, an economist at Mandiri Sekuritas, said consumption may accelerate in the second quarter because of spending for holidays before and during the Islamic fasting month and on campaigns for regional elections.
Meanwhile, imports accelerated 12.8% from a year earlier, far outstripping a 6.2% increase for exports.
Finance Minister Sri Mulyani Indrawati said the government would work with the business community to stimulate investment and encourage more exports to take advantage of a weak rupiah. — Reuters
Source: https://www.thestar.com.my/business/business-news/2018/05/08/indonesias-quarterly-economic-growth-slows/#al3HI0Yc5QVQbBVe.99