Indonesia grows at best pace in four years
But sluggish consumption still keeping growth from moving much
JAKARTA: Indonesia’s economy grew at its fastest pace in four years in October-December, propped up by investment and government spending, but sluggish consumption is still keeping growth from moving much above 5%, where it has been for years.
In the fourth quarter, gross domestic product rose 5.19% from a year earlier, the highest since 2013’s last period, while full-year growth was 5.07%, making 2017 the best year since 2013.
Consumption, the biggest contributor to Indonesia’s economy, picked up pace in the fourth quarter from the previous one, but gains remained slightly below 5% on an annual basis, the statistics bureau’s data showed.
The head of the bureau said consumers opted to put more into banks savings in the last quarter rather than spending. “What prevented them from spending the money? Is it simply just the right time for them to save or are they scared about future prospects?,” said Suhariyanto, who predicted consumers would hold off buying big ticket items in the first quarter.
Car sales in Indonesia grew by 1.6% last year, but those of motorcycles fell 0.8%.
Capital Economics said it sees “little prospect of a sustained recovery” in economic growth.
Despite interest rates cuts, credit growth remains very weak, the firm said, adding that it expects economic growth of 5% both this year and in 2019.
Others were more optimistic. ANZ is forecasting 5.3% growth this year as consumption demand improves and with Indonesia’s hosting of the Asian Games with 45 nations participating also set to help.
Still, economic growth remains well below the near 7% levels recorded for 2017 in neighbours such as Vietnam and the Philippines.
The government of President Joko Widodo, whose five-year term ends in 2019, has rolled out a series of deregulation moves in a bid to attract more investment and cut reliance on consumption as a growth engine.
In the fourth quarter, investment grew by 7.27% according to the statistics bureau, picking up pace from 7.11% in the third quarter.
For the full year, investment rose 6.15%, up from 4.48% in 2016, making it the second-biggest contributor to growth after consumption.
“We are seeing signs the investment up-cycle is broadening from public infrastructure projects to more private sector spending on machinery and equipment,” said Euben Paracuelles, an analyst at Nomura in Singapore, who forecast 5.6% GDP growth in 2018.
Government spending increased in the fourth quarter and grew by 2.14% for the full year, after a small contraction in 2016.
Gundy Cahyadi of DBS said that if commodity prices remain at current levels, investment growth will possibly have ”positive spillover impact to household consumption”.
Indonesia’s business community sees over- all business conditions as positive but regulatory hurdles remain a problem.
“The central and regional government are not synchronised. Many overlapping (regulations) and the coordination between ministries and agencies is yet to be maximised,” said Shinta Widjaja Kamdani, a deputy chief of Indonesia’s Chamber of Commerce and Industry.
Investment board chief Thomas Lembong warned last week that the country is still losing out on attracting foreign investment to the Philippines, Thailand and Vietnam.
Indonesia posted a trade surplus nearly every month in 2017, and price improvements in energy-related commodities and palm oil boosted commodity exports.
Exports grew 9.09% in 2017, while imports rose 8.06%, the statistics bureau said.