Indonesia first-quarter GDP growth misses forecast

Published: May 06, 2019 14:01:19 | Updated: May 13, 2019 10:00:53

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Indonesia’s economy expanded more slowly than expected in the first quarter (Q1) of this year, as investment dropped ahead of elections and campaign spending failed to sustain growth momentum.

Southeast Asia’s largest economy grew 5.07 per cent in January-March from a year earlier, the slowest pace in a year, data from the statistics bureau showed on Monday, reports Reuters.

A Reuters poll had expected gross domestic product (GDP) growth of 5.18 per cent, in line with fourth-quarter expansion.

Alongside soft investment, cooling household consumption, which accounts for more than half of the economy, also contributed to the slowdown, the bureau said.

Indonesia’s rupiah showed little reaction to the data, but had slipped ahead of the release on concerns over a fresh deterioration in the US-China trade dispute.

Some economists said Bank Indonesia (BI) was unlikely to immediately respond by cutting interest rates, noting BI had signaled it would wait until the current account deficit narrows.

The BI last year raised rates six times by 175 basis points to defend the rupiah, making it one of Asia’s most aggressive central banks amid growing pressure from US interest rate hikes and a ballooning current account gap.

Some analysts have argued BI has room to unwind these hikes to support economic growth this year, as the United States turns more dovish with its monetary policy and Indonesia’s inflation stays near the lower end of BI’s target range.

There are also calls for President Widodo to take bolder steps to boost GDP with annual growth falling short of his 7.0 per cent growth target in his first term, having stalled at around 5.0 per cent.

“The government needs to provide a policy incentive to improve the investment climate and at the same time support exports,” said Josua Pardede, an economist at Bank Permata.

The government’s growth target for 2019 is 5.3 per cent, while the central bank has forecast a range of 5.0-5.4 per cent.

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