Indonesia GDP growth disappoints as spending remains subdued

By BLOOMBERG

JAKARTA • Indonesia’s economy expanded at a slower pace in the third quarter (3Q) than economists expected, a disappointing outcome for the government as it struggles to boost growth in South-East Asia’s largest economy.

Gross domestic product (GDP) rose 5.06% from a year earlier, according to data released by the statistics bureau in Jakarta yesterday. Median estimate of 17 economists in survey was for growth of 5.2%. Economy grew 3.18% from previous quarter; economists estimated a 3.2% gain.

Indonesia’s economy has expanded at an average of about 5% over the past five years, with government officials, including Finance Minister Sri Mulyani Indrawati, striking a more upbeat tone on the growth outlook. Mirza Adityaswara, senior deputy governor at the central bank, last week projected stronger growth in the 3Q.

While a rebound in commodity prices has helped deliver double-digit growth in exports for most of the year and investment has gained, consumer spending and credit growth has remained muted, even after eight rate cuts since the beginning of last year. The disappointing growth data coupled with low inflation keeps the door open for Bank Indonesia to continue to ease monetary policy.

“The 3Q GDP outturn poses downside risks to our forecast of growth accelerating to 5.5% in the second half (2H) from 5% in the 1H (and hence our full-year 2017 GDP growth of 5.3%), said Euben Paracuelles and Brian Tan, economists at Nomura Holdings Inc in Singapore.

“We continue to expect an improvement in the 4Q due to more public sector capital expenditure disbursements and a continuation of higher private sector investment spending.”

Weak private consumption, even though offset by stronger investment and exports, raises the prospect that the central bank could cut its benchmark rate again, said Aldian Taloputra, an economist at Standard Chartered plc in Jakarta. “The risk of further easing in the 1Q remains on the table, should inflation continue to be benign and if the rupiah remains stable,” he said.