JAKARTA, May 7 — Indonesia posted its slowest growth in six quarters in the first three months of this year as exports fell due to weaker global demand, and the central bank might have to hold its policy rate steady for the whole year to spur the domestic economy.
Growth could further slow this year to the lowest since 2009 if private consumption and investment fail to compensate for weaker exports, and with a likely rise in inflation expectations, investors may be tempted to sell Indonesian assets for now.
Government data today showed first-quarter growth was 6.3 per cent from a year ago, as expected, and still among the highest in the region, but exporters expect a shrinkage this year due to the weak recovery in the US and ongoing debt problems in the euro zone.
“Our main export destinations are still Europe and the US We are counting on the domestic market,” said Tutum Rahanta, secretary-general of the Indonesian Retail Association, which has seen clothing exports to both regions falling.
In the January-March quarter, export growth slowed to 6.9 from a year earlier, after gaining 29 per cent in full-year 2011 to a record high of US$203.62 billion (RM613.9 billion).
The G20 country is less exposed to exports than many of its regional peers, with private consumption accounting for 55 per cent of GDP.
Foreign direct investment jumped 30.3 per cent in the first quarter compared with the same period last year, following a double stamp of approval by rating agencies for Indonesia as an investment grade country.
Last year’s GDP growth at 6.5 per cent was the strongest since 1996. Economists in a Reuters quarterly poll in April forecast that growth would slow to 6.1 per cent this year, below the central bank’s estimate of 6.3 to 6.7 per cent.
“The key will be to see how domestic demand performs in the coming quarters,” said Gundy Cahyadi, economist at OCBC. “While sentiment remains very supportive, we would caution that the recent weakness in the rupiah may be a concern in the near term, at least to the extent that this may affect consumption.”
With export growth likely to remain threatened, “we remain of the view that 2012 GDP growth may undershoot official estimates”, he said.
The rupiah was little changed after the data, having lost more than 1.5 per cent to be emerging Asia’s worst performer so far this year. Foreign investors have sold more Indonesian bonds than purchases this month after April inflation, year on year, jumped to a seven-month high of 4.5 per cent.
The government has announced it is delaying implementation of a plan to restrict the consumption of subsidised fuels by car type. One month earlier, its proposal to immediately raise petrol prices by cutting costly subsidies was rejected by parliament.
Both moves will keep inflation in check, and that should cause Bank Indonesia (BI) to hold its benchmark rate steady at a record low of 5.75 per cent at a meeting on Thursday — and possibly for the whole year.
“Growth on the year could still average above 6.0 per cent and that should allow Bank Indonesia the headroom to take their eyes off growth risks and watch the inflation picture more closely, especially as the government mulls over alternatives to an outright increase in fuel costs,” said Radhika Rao, economist at Forecast in Singapore who continues to see the benchmark rate unchanged the rest of 2012.
Overall, domestic consumption was still strong last quarter, but slowing car and motorcycle sales suggest local demand may peter out in coming months, particularly after BI set minimum down-payments for housing and auto loans starting from June.
The transport sector led first quarter growth, together with trade, hotels and construction, as in the previous quarter.
Domestic consumption is still the main driver of the economy as disposable income rises among a youthful middle class. More than 1,000 people queued up in a Jakarta mall last month to buy a newly launched Samsung tablet for a discounted price.
“I was thinking of queuing up, but looking at the long queue I decided not to. Paying another 500,000 rupiah (US$54.41) more is worth the convenience,” said Anthony Reza, who works in the social media industry in Jakarta. — Reuters