Indonesian Economic Growth Ticks Up As Confidence Increases 

Wednesday, 11 November 2009

The Jakarta Globe

After three consecutive quarters of slowing growth, Indonesia’s economy started to improve in the third quarter, growing 4.21 percent compared with the same period last year.

However, with the agriculture and manufacturing sectors still growing more slowly than other sectors, the outlook for the employment market remained gloomy, the Central Statistics Agency (BPS) said on Tuesday.

The economy expanded 3.87 percent in the third quarter from the previous three months to June 30.

The year-on-year GDP growth was in line with economists’ predictions and the government’s projection for the quarter of 4.1 percent to 4.3 percent.

The economy started to slow in the fourth quarter of last year because of the impact of the global financial crisis, after enjoying steady growth of more than 6 percent throughout 2008.

It continued to slow to 4.45 percent in first quarter of 2009 and to 4.05 percent in the second quarter of this year.

“In the third quarter, our economy has started to pick up. This is a sign of recovery from the global financial crisis,” said BPS deputy chairman Slamet Sutomo.

He said the upward trend was in line with improving business confidence.

“Businesses experienced an increase in their revenues in the third quarter, while consumers have experienced rising incomes and lower inflation, which boosted their consumption,” Slamet said.

Enrico Tanuwidjaja, an economist from the OCBC Bank in Singapore, said Indonesia was helped by its high level of domestic demand, and to some extent, the government’s fiscal stimulus package.

“The recent fiscal stimulus package seemed to have had a significant impact on consumption. While the outlook for the manufacturing sector and exports still hinge significantly on a global recovery, the local economy remains strong on the back of steady private consumption and a broad domestic market.”

BPS reported that government spending rose by 10.2 percent year on year in the third quarter of 2009, household consumption was up by 4.7 percent, and investment spending by 4 percent.

Slamet said private consumption contributed 63 percent of the nation’s gross domestic product in the third quarter.

“In the third quarter there are school vacations, the start of new academic year, Ramadan and Idul Fitri, which contributed greatly to private consumption,” he said.

The non-tradable, or services sector, continued to outperform more traditional sectors such as agriculture, mining and manufacturing, Slamet said.

“We would prefer the tradable sector to grow faster than the non-tradable one, since it has traditionally provided more jobs. But since early 2000, the services sector, especially communications, has been outpacing it,” he said.

Ikhsan Modjo, director of the Institute for Development of Economics and Finance, said the service sector’s contribution to the global economy was increasing.

“This is not unique to Indonesia. However, this means job creation in the future could be harder,” he said.

“Job creation would also be crucial in the coming few months, to ensure that some momentum would be sustained in domestic demand,” said Gundy Cahyadi, an economist from IDEAGlobal in Singapore.

According to the latest BPS employment figures, issued in August, Indonesia has 9 million people unemployed out of at total of 113 million workers, or an unemployment rate of 8.14 percent.

However, if the numbers of only partially employed people are also taken into account, the figure could double, according to analysts.

Seven percent annual national growth has been cited as the figure the nation needs to reach to soak up all the new workers entering the economy every year.

Looking forward, Enrico said Indonesia’s economy would continue to grow this year.

“Going forward, the better than expected Q3 GDP growth figure is likely to ascertain the solid fundamentals of the country in weathering the current financial storm,” he said.

He added that he expected 4.5 percent GDP growth in the fourth quarter.