Indonesia's Economy Continues to Beat Forecasts

Tue, 8 February 2011

The Jakarta Globe

Financial markets and industry players welcomed the news of better-than-expected economic growth, but they were split on whether 2011 would beat last year’s achievement.

Gross domestic product rose 6.9 percent in the fourth quarter from a year earlier, the Central Bureau of Statistics (BPS) announced on Monday, well above even the most optimistic forecasts. GDP growth for 2010 came in at 6.1 percent, also above most forecasts.

“The GDP announcement was not a surprise. Everybody knew Indonesia’s economy would grow around 6 percent last year, so I think it did not have much influence on the market,” said David Chang, a director at UOB Kay Hian Securities.

Chang was also skeptical about the economy’s chances to beat its 2010 performance, citing rising inflation and interest rate hikes. What would drive the economy this year, he said, was greater per capita income.

“People will have more money to spend, which will then be reflected in corporate earnings,” he said.

In addition to the GDP data, the BPS announced on Monday that the nation’s per capita income rose to Rp 27 million ($3,000), up 13 percent from 2009.

The private sector has its own worries, though general sentiment remained positive. Amelia Tjandra, marketing director for Astra Daihatsu Motor, said the government’s 6.3 percent target for economic growth this year was achievable as long it kept political and social conditions stable, “not like what happened in Egypt.”

While she said the government’s plan to prohibit private vehicles from using subsidized fuels would impact the automotive industry, of greater concern was the damage inflation and higher interest rates would have on consumers’ purchasing power.

“Seventy percent of car buying schemes are done through loans. If the interest rate is higher, then there are huge possibilities people may delay buying these kind of goods,” she said.

In a worst-case scenario, Amelia said, car sales would maintain last year’s pace, which saw a record 764,710 units sold. If higher interest rates do not have a severe effect on the sector, though, she said sales could still match the Association of Indonesian Automotive Manufacturers’ (Gaikindo) forecast of 800,000 units.

Artadinata Djangkar, a director at Ciputra Property, a subsidiary of property conglomerate Ciputra Development, said he believed the economy could do even better than 2010.

“Looking at last year, I believe investment will keep rising and household consumption will remain strong,” he said.

“Yes, there is an expectation of higher interest rates as well as inflationary pressures, but as long as the rate hike is done gradually, I don’t think it will have hurt growth.

In the property sector, housing loans have been way above the BI rate, at 9 percent to 9.5 percent, but I believe people will still buy as their incomes rise and the economy grows.”

Fetty Kwartati, corporate secretary and head of investor relations at Mitra Adi Perkasa, said the prospects for the economy and the retail sector were good. “The GDP growth means the spending power of the middle and upper class is increasing,” she said.