JAKARTA: Indonesia’s economy grew at its slowest in more than four years in the first quarter as a mineral export ban, successive interest rate rises and uncertainty over upcoming presidential elections unnerved investors.
Domestic demand remained robust, however, and even accelerated from the previous quarter, despite efforts by the central bank to tamp down inflationary pressures. Policymakers have taken aggressive steps to shrink the country’s large current-account deficit to buffer against capital outflows and inspire confidence in the rupiah.
That has made investors more optimistic about Indonesia even though many are still concerned about political risks. A smooth path to the presidential palace for frontrunner Joko “Jokowi” Widodo, whose huge popularity rests on his clean, can-do image, would likely cheer foreign investors eager to see a smooth transition.
Gross domestic product in the January-to-March quarter expanded 5.21 percent from a year earlier, data from the statistics bureau showed yesterday. That was the slowest pace since the third quarter of 2009 and compared with 5.60 percent forecast in a poll. Growth was 0.95 percent on a quarterly basis against expectations of 1.26 percent.
The mining sector contracted 0.38 percent in the first quarter from the same period a year earlier against a 3.91 percent expansion in October-December, due to restrictions in mineral exports. On the contrary, the construction sector grew 6.54 percent from the same period a year ago as miners started building smelters, the statistics bureau said.
Meanwhile, domestic consumption — the main driver of the economy — grew 5.61 percent from a year earlier and was stronger than 5.25 percent growth in the previous quarter, partly driven by pre-election spending.
OCBC’s economist Wellian Wiranto said resilient consumption also means that the effect of rate increases totalling 175 basis points will take a longer time to filter through the economy. “Just because the prescription takes longer to take effect than anticipated, does not mean that the doctor should yank it away from the patient. These things take time, and BI will hopefully maintain the course of tight monetary policy,” Wiranto said.
Investment growth moderated in the January-March quarter, up 5.13 percent against 5.90 percent in the first quarter a year ago, data showed. Analysts says investors are waiting for a new line-up of leaders and possible policy changes. The moderation was in line with slowing offshore investment commitments that grew 9.8 percent in January-March, far slower than 25.40 percent growth the previous quarter.
However, investment growth recovered from the last quarter of 2013 when it expanded 4.37 percent. Reuters
