JAKARTA, Aug 5 (Reuters) – Indonesia’s annual economic growth in the second quarter came in at its slowest in three as household and public spending eased, official data showed on Wednesday, though the figure was better than expected.
Indonesia has battled a crisis this year in investor confidence, sapped by worries over government overspending in a race to reach President Prabowo Subianto’s goal of 8% growth before 2030.
GDP in Southeast Asia’s biggest economy grew 5.29% in the quarter of April to June, Statistics Indonesia said, bettering the median figure of 5.1% in a Reuters poll. It grew 5.61% year-on-year in the January-March period.
GOVERNMENT SPENDING POSTS THE BIGGEST GROWTH
Government spending posted the biggest growth, rising 15.97% in the second quarter on the back of spending for civil servants, although slowing from a first-quarter surge of 21.81%, the data showed.
“A sharp pick-up in public spending was a key contributor, while consumption received a hand from stimulus measures and limited pass-through of elevated global energy prices,” said DBS Bank economist Radhika Rao.
Resource-rich Indonesia has posted annual growth of about 5% in most quarters since the COVID-19 pandemic, with momentum usually building around the Eid festive season that fell in the first quarter this year.
But markets are also anxious about a potential downgrade of Indonesia’s equity market status by index provider MSCI, as well as the central bank’s independence, following last week’s surprise resignation of Bank Indonesia Governor Perry Warjiyo.
The rupiah currency is trading near record lows against the dollar and the stock market has lost nearly 30% this year.
Shielding consumers from rising energy prices caused by the Iran war spurred greater government spending on fuel subsidies.
HOUSEHOLD SPENDING BENEFITS FROM TRANSPORT, HOTELS
Household spending, which makes up about half of Indonesia’s GDP, grew 5.06% in the second quarter, supported by spending on transport and hotels during school holidays, but lagged the previous quarter’s growth of 5.52%.
Investment growth accelerated at the fastest pace in a year to stand at 6.87% in the second quarter.
Imports outpaced exports again in the April-June period, as in January-March, detracting from the GDP figure.
In terms of industries, manufacturing growth slowed, while the mining sector contracted due to quota curbs.
The construction sector notched its best expansion in almost two years, boosted by investment in infrastructure, construction in industrial zones and buildings for Prabowo’s cooperative programme in thousands of villages.
Activity in coming quarters could be hit by a BI rate rise of 100 basis points over May and June aimed at attracting capital inflows to buttress the rupiah.
“We believe both the government and Bank Indonesia will need to strike a delicate balance between supporting growth and maintaining macroeconomic stability,” said Bank Permata economist Faisal Rachman.
“Persistent external pressures could widen Indonesia’s twin deficits, which may trigger renewed risk-off sentiment, capital outflows, and pressure on the rupiah,” he said, referring to the fiscal deficit and the current account deficit.
“These risks are likely to constrain the economy’s ability to sustain stronger growth momentum going forward,” he added.
(Reporting by Gayatri Suroyo, Fransiska Nangoy, Stefanno Sulaiman, Bernadette Christina; Editing by David Stanway and Clarence Fernandez)
Comments